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Russian ruble banknotes and coins.
Moscow argues that this is an “artificial” situation. Russia is solvent, but sanctions make dollar transfers impossible. A few weeks ago, the Kremlin played it safe: Vladimir Putin issued a presidential decree that would allow financial institutions to settle liabilities abroad also in rubles, instead of in the respective foreign currency. That is precisely what has happened, and now, the Russian currency, backed by various market-distorting measures by the Kremlin, is rising back to previous levels to the war in Ukraine.
That’s because the Russian Ministry of Finance paid on Wednesday (04.06.2022) for the first time its foreign debt in rubles instead of dollars. These are Eurobond payments for almost 650 million dollars, the equivalent of regarding 600 million euros. In reality, that sum should have been paid in dollars. The background is that the responsible US correspondent bank refused to transfer the payment in US currency, another measure of the sanctions once morest Russia.
Failure to pay is not the same as bankruptcy
“Creditors might interpret that to mean that Russia has not transferred the payment,” Alexander Libmann, of the Institute for Eastern Europe at the Free University of Berlin, tells DW. However, that is not the same as going bankrupt, it is that is, in a default due to lack of payment. “The concept of bankruptcy implies that it cannot be paid due to structural reasons. But that does not apply to Russia, since that country’s state finances were relatively stable before the war in Ukraine”. But the problem is that the stability of Moscow’s finances, on the other hand, cannot be interpreted independently of sanctions, he adds.
In any case, the Moscow government says it understands the lack of payment of the debt in the currency provided for in another way: the Kremlin spokesman, Dimitri Peskov, explained that there is no reason for a bankruptcy because Russia has all the necessary resources to pay its external debt. What has happened is that significant amounts of Russian foreign exchange reserves have been “frozen” and thus are blocked. If this situation continued, Russia would be forced to switch to payment in rubles. Only if those ruble payments were also blocked. one might speak of an “artificial bankruptcy”.
Rating agencies see payment in rubles as non-payment
In fact, some analysts see in the current situation rather a so-called “technical default”, and not a real default. Above all, one that affects the Kremlin only to a certain extent. “From the Russian point of view, that is not, at least in the short term, necessarily a problem,” said Patrick Heinisch, senior Russia analyst at the regional bank for Hesse and Thuringia Helaba. “What happens is that the Russian government is already excluded from the Western capital market because of the sanctions. In any case, it cannot issue new debt bonds, so the rating is secondary.” Despite that, the big credit rating agencies have already announced that they will interpret payments in rubles as a default.
But there is still something that would cushion the fall in non-payment, if it were to occur, since, from the first default, a period of 30 days begins in which Russia might still meet its payment obligations in dollars. In principle, that should also be possible because Russia receives many hundreds of millions of dollars every day in daily income from the sale of oil and gas. Only Moscow might not want to use them to pay off its foreign debt.
Calm in the markets
This is precisely what the United States is aiming at, says Patrick Heinisch: “Ultimately, it wants to force Russia to use profits from oil and gas sales to repay its foreign debt, so that those revenues are no longer are available to finance the war.
On Wednesday, White House spokeswoman Jen Psaki said Moscow now has a choice between slowly dissolving its reserves or declaring state bankruptcy.
In addition to all this, if Russia were to go bankrupt, this would not have an impact at the global level, since, precisely, it would be a technical default. Furthermore, Russia’s participation in world financial markets is manageable. The head of the International Monetary Fund (IMF), Kristalina Georgieva, described the involvement of international banks in Russia as “definitely not systemically important.” According to the Bundesbank, Russia owes regarding 6 billion euros to German banks, and 7.5 billion euros. euros to foreign affiliates.That corresponds to 0.4 percent of the total amount of external loans of German banks.
(cp/ers)
Author: Mischa Ehrhardt