After flirting with default, Russia seems to have finally pulled away from the precipice. Despite two days of delay, it honored, Friday, March 18, a deadline for repayment of its public debt. At the end of the afternoon, the creditors saw the money arrive in their accounts.
The reimbursement saga speaks volumes about the consequences of the sanctions for Russia. Wednesday, March 16, the Russian government should, in principle, pay interest of 117 million dollars on government bonds (about 105.7 million euros). But, since the announcement of the freezing of the reserves of its central bank, Moscow maintained the vagueness on its will to refund. On February 5, the Kremlin issued a decree announcing that creditors coming from “hostile countries” would receive their money in rubles, while the loan was in dollars. Then, when the D-day of reimbursement arrived, the Russian government tried another maneuver: to make the payment in dollars, but from the money blocked by the sanctions.
Was it possible? The “general license 9A” which defines US government sanctions seemed to allow it, providing an exemption until May 25 for transactions on debt repayments. The Russian government wanted to test this rule, announcing very publicly that the payment had been made from blocked accounts. This took two days to be effective, the time that the American banks which carried out the transaction – JPMorgan and Citi – ensure that they did not violate the sanctions.
An unusual situation
After 1918 and 1998, therefore, Russia has not yet defaulted. But it could only be a matter of time. For one, the exemption only runs until May 25. On the other hand, Moscow could be recalcitrant: “The sanctions seem to have largely reduced the will of [la Russie] to reimburse”underlines William Jackson, of Capital Economics.
Russia is in an unusual situation for a country that is approaching default. Until the sanctions, it had no shortage of foreign currencies. Even today, it continues to sell oil and gas, collecting hundreds of millions of dollars a day. She can theoretically repay. But she knows that she can no longer raise money on the financial markets. So what’s the point of continuing to repay? Failure to meet deadlines is a kind of counter-sanction.
The Russian Stock Exchange remains closed for the stock market, but it will reopen on Monday for state debts
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