Explainer | Russia swerves to avoid default: what’s next?
- Sanctions-hit Russia last week paid foreign debt on two dollar-denominated bonds
- Russia has not defaulted on its foreign debts since the Bolshevik Revolution in 1917
Russia’s US$40 billion in international bonds and the chance of a default have become the focus of global financial markets since it was hit with sanctions from the United States and its allies after its invasion of Ukraine in late February.
Dubbed a “special military operation” by Russia, the invasion has turned Russia into a pariah, including in financial markets, and has entangled its ability to pay its debts.
The chance of default dramatically increased in early April when the United States stopped the Russian government from using frozen reserves to pay some US$650 million to its bondholders.
With the end of a grace period on those payments looming, Russia’s finance ministry said on Friday it had paid, in dollars, US$564.8 million of coupon and redemption obligations on a bond maturing in 2022 and a coupon payment of US$84.4 million on another due in 2042.
The announcement surprised markets that had been gearing up for a default at the end of the grace period on Wednesday, which would have been Russia’s largest major external default in over a century.