Russia may already be in default, Moody's says
Russia may have defaulted on its foreign debt after trying to make certain bond payments in rubles, showing the devastating economic effects of the nation's exclusion from the Western financial system following its invasion of Ukraine.
Moody's on Thursday noted that Russia made payments on two bonds in rubles, rather than in U.S. dollars, which was against the terms of the bond contracts.
"The bond contracts have no provision for repayment in any other currency other than dollars," the ratings agency said in a statement.
The payments indicate "a change in payment terms relative to the original bond contracts and therefore may be considered a default under Moody's definition if not cured by 4 May, which is the end of the grace period," Moody's said in a press release.
The bonds in question mature in 2022 and 2042. Moody's noted that while some bonds issued after 2018 allow for payments in rubles under some conditions, those issued earlier, including those maturing in 2022 and 2042, do not.
S&P Global Ratings last week downgraded Russia, saying the country was in "selective default" after making some payments in rubles. S&P also said it didn't expect Russia to be able to convert the rubles into dollars within the 30-day grace period allowed.
A selective default occurs when a borrower pays some debts but not others.
Russia has not defaulted on foreign debt since the Bolshevik Revolution in 1917, when the Soviet Union emerged and repudiated debts made by the previous Tsarist government. In the late 1990s, after the Soviet Union dissolved, Russia was able to continue to pay foreign debts with the help of international aid. It did default on domestic debt, however.
Tightening sanctions on Russia's financial system have made it harder for the government to access hundreds of billions it holds in foreign reserves. After evidence emerged of alleged Russian war crimes in Ukraine — the killing of civilians in the town of Bucha during Russian military occupation — the U.S. barred Russia from using any foreign reserves held in U.S. banks to pay its debts.
Russia's finance ministry said last week that it tried to make a $649 million payment toward two bonds to a U.S. bank but that payment was not accepted because of sanctions.
Russia has signaled that it remains willing to pay its debts, but the Kremlin also has warned that it would do so in rubles if its overseas accounts in foreign currencies remain frozen.
Finance minister Anton Siluanov recently warned that Russia would take legal action if it is forced to default on its sovereign debt.
The Associated Press contributed reporting.
