Russia has to make an interest payment of about 107 million euros today. A modest amount, but the sanctions make it difficult for Russia to meet its financial obligations. Therefore, it could lead to the bankruptcy of Russia.
It concerns two government bonds in dollars that Russia issued in 2013. The interest on this must therefore also be paid in dollars, but that is virtually impossible due to international sanctions. Because of the war in Ukraine, Russia can hardly get dollars and euros anymore.
What if Russia misses the payment?
Russia’s national debt last year was about 61 billion euros, of which 19 billion euros in foreign currency. The country had a relatively low external debt (4 percent) relative to gross domestic product.
If Russia does not make the interest payments, it will have another 30 days before it is considered a defaulter. “It is not a mega amount and the payment should not be a problem for Russia. The country has a reserve of 600 billion dollars, but because of the sanctions they cannot reach it,” says Rabobank analyst Stefan Koopman.
From an economic perspective, a possible default is less serious for the Russian economy than the sanctions imposed, says Jeroen van den Broek, bond strategist at ING. “Access to capital markets will be limited for Russia, making the recovery more difficult. But the consequences and effects of the sanctions are greater.”
If Russia goes bankrupt, the country can still try to borrow money or turn to the International Monetary Fund (IMF) for support with money that its members have raised. Whether Russia would also receive money from the IMF’s restructuring program remains to be seen, however.
Why not in rubles?
Russia will probably make the repayment in rubles, but contracts often state that this is not allowed. “As a bondholder, you are not satisfied with rubles. Or you have to negotiate, but you will in any case suffer a loss,” says Jos Versteeg, stock market analyst at InsingerGilissen.
In addition, the ruble has plummeted since the beginning of this year. Koopman: “Investors have not invested in government bonds that are not in rubles for nothing. They wanted the guarantee of a hard currency.”
But if Russia does convert that into rubles, you now have to deal with a loss of value of about 30 percent. And you will not be compensated for that by the Russian government,” says Koopman.
The rate of the Russian currency:
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