Russia disagrees, but the rest of the world is of the opinion that Moscow has defaulted on its foreign debt for the first time since the Bolshevik Revolution more than a century ago. A 30-day grace period on interest payments originally due May 27 expired Sunday, per the AP. That pushed Russia into formal delinquency, per the Wall Street Journal, which explains that the problem isn't a lack of money but sanctions put in place over the Ukraine war. Last month, for example, the US Treasury Department ended Russia's ability to pay its billions in debt back to international investors through American banks. The default isn't a surprise and wasn't expected to affect world markets.
Kremlin spokesman Dmitry Peskov told reporters Monday that "there are no grounds to call this situation a default," saying Russia has paid but the payment couldn't be processed because of sanctions, per the AP. Jay Auslander, a top sovereign debt lawyer at the firm of Wilk Auslander in New York, pushed back on that. Russia argues that "this happened because of sanctions, but sanctions were fully in your control," he said. "All of this was under your control, because all you had to do was not invade Ukraine." Russia owes about $40 billion in foreign bonds, about half of that to foreigners. Before the start of the war, Russia had around $640 billion in foreign currency and gold reserves, much of which was held overseas and is now frozen.
Russia hasn't defaulted on its international debts since the Bolshevik Revolution, when the Russian Empire collapsed and the Soviet Union was created. Russia defaulted on its domestic debts in the late 1990s but was able to recover from that default with the help of international aid. Russia has effectively been in default for months in the eyes of bond investors, said Liam Peach, an economist specializing in emerging European markets at Capital Economics. Insurance contracts that cover Russian debt have priced an 80% likelihood of default for weeks, and rating agencies like Standard & Poor's and Moody's have placed the country's debt deep into junk territory.
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