Citizens pass in front of a money changer in Moscow, Russia, on the 28th of last month. AP News
[Financial News] The Russian government, which is on the verge of default due to international sanctions tied to foreign currency, claims that it has paid off interest on government bonds to foreign creditors as promised. However, it is unclear whether actual creditors will be able to receive money from frozen Russian accounts.
According to foreign media such as CNN, Russian Finance Minister Anton Siluanov said in an interview with Russian state media Russia Today on the 16th that he had paid off interest on government bonds that are about to mature.
Earlier, US investment bank JP Morgan, in an investor report on the 2nd, pointed out that the Russian government must repay US$700 million in foreign currency denominated government bonds within this month. Fortune, the US business magazine, analyzed that Russia will have to pay an interest of $117 million on two dollar-denominated government bonds on the 16th, and it cannot be paid in rubles under the contract.
In the announcement on the 16th, Siluanov added a proviso clause stating that the Russian government had faithfully fulfilled its obligations to its creditors. “It is not up to us to decide whether our obligation to pay interest in foreign currency will be fulfilled,” he said. He pointed out that creditors may not be able to collect interest if the US, which has imposed economic sanctions, refuses to pay interest.
Earlier, Western countries, including the United States and Europe, introduced large-scale economic sanctions immediately after Russias invasion of Ukraine. Shiluanov said in an interview on the 13th that Western sanctions had frozen about half of Russias $643 billion of foreign exchange reserves abroad. He said he would repay debts in foreign currency in rubles until the West lifts sanctions, which he stressed was “a perfectly fair measure.”
Shortly after Siluanovs remarks, concerns arose that a default could occur if Russia coerced to repay foreign currency interest in rubles. Russia declared a default in 1998 because it could not pay its ruble bonds, and it will be the first time since the communist revolution of 1917 if it defaults because it cannot pay its foreign currency bonds.
Siluanov did not make it clear whether the interest was paid in rubles or whether the payment was ordered from a frozen foreign currency account. “We have the money, we made the payment decision, and now its the American choice,” he said in an interview on the 16th.
In general, even if a default situation occurs, there is a grace period of 30 days, and if Russia does not repay by April 15, it will be in a final default state. JP Morgan has warned that Russia will have to repay $40 billion of foreign currency debt by the end of this year, and that $2 billion of debt is due back in early April.
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