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Russia is moving to pay international bondholders in rubles rather than dollars just days before paying key interest on its foreign debt, a move that could make a default more likely.
Russia’s Finance Ministry said on Monday it had approved a temporary procedure to repay foreign currency debt, but warned that payments would be made in rubles if sanctions prevented banks from servicing debts in Russia’s currency. episode.
Minister of Finances Anton Siluanov said in a statement:
“Claims that Russia cannot meet its sovereign debt obligations are false,”
“We have the necessary funds to honor our obligations.”
Paying Eurobond repayments in rubles could be seen as tantamount to a default, with Siluanov accusing Western countries of trying to engineer such a move.
“The freezing of central bank and government foreign currency accounts can be seen as a desire by several Western countries to organize an artificial default.”
Moscow is expected to make $117 million in combined interest on two dollar-denominated bonds on Wednesday, although it has a 30-day grace period to make the payments.
The cost of insuring Russian debt against default has risen since the war in Ukraine, as traders predict that such insurance contracts could be triggered if payments are made in rubles, or not at all.
Yesterday the head of the IMF Kristalina Georgieva warned that a Russian default was no longer “unlikely” as Western sanctions mean Moscow cannot access much of its foreign currency reserves.
Georgiava said CBS Face the Nation program:
“In terms of debt service, I can say that we no longer view the Russian default as an unlikely event. Russia has the money to service its debt, but does not have access to it.
What worries me the most is that there are consequences that go beyond Ukraine and Russia.
According to Siluanov yesterday, foreign sanctions froze about $300 billion of the $640 billion Russia had in its gold and currency reserves,
Eurozone finance ministers will discuss the economic consequences of the war in Ukraine today at a regular Eurogroup meeting, with soaring energy and commodity prices likely to dampen the recovery.
European markets should open higher.
Chinese stocks fell sharply, with the CSI 300 down 3% after the government locked down Shenzhen in a bid to halt the Covid outbreak, and investors worried about Beijing’s close relationship with Russia .
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