The Russian government owes about $ 40 billion in US dollar and euro bonds, half of which are owned by foreign investors.

JPMorgan revealed on Wednesday that Russian companies have accumulated about $ 100 billion in foreign currency debt, with $ 117 million in interest on dollar-denominated government bonds.

Loneliness of Russia

Russia’s isolation from global financial markets is on the rise, at a time when investors are losing hope of getting their money back, but the Russian government is seeking to secure the remaining cash reserves in foreign currencies, so it is proposed to pay. Credit liabilities, denoted in rubles instead of the dollar, or the euro, prompted credit rating agencies to warn of an immediate default in Russia’s ability to repay debts.

Even though the Russian currency has lost 40 percent of its value against the dollar over the past month, sanctions against Western lenders will make it harder to access the ruble.

In turn, the International Monetary Fund’s managing director, Kristalina Georgieva, denied that Russia’s fiscal deficit was a barrier to payment. The problem is that Russia cannot use most of its international currency reserves, which are already frozen due to sanctions. “We are no longer talking about the Russian default as an impossible event,” he added.

Default

Last week, the World Bank said Russia and Belarus were in a “default zone”, with Fitch estimates that default was imminent because sanctions were reducing Russia’s interest in repaying foreign debt.

Historically, Russia last did not repay its debt in 1998. If Russia fails to repay its current foreign currency debt, it will be its first default since the 1917 Bolshevik Revolution.

Attention

Sanctions imposed in 2014 after the annexation of Crimea by Russia reduced the interest of foreign investors in Russian assets, and the country was not fully recovered before Washington imposed further sanctions in 2019.

Limited expression

So far, officials say, the risk to global banking institutions of repaying Russian debt due to limited exposure to Russian assets will not be great, but the biggest branches of the war in Ukraine and Russia’s economic isolation are high energy. And food prices. Daniel Tannebaum, a former U.S. Treasury official who advises banks on sanctions, said he sees many Russian bond market dealers wondering about the expected scenario for the crisis.

Artificial growth retardation

In addition, Russian Finance Minister Anton Silvanov accused countries of trying to create “artificial defaults” by freezing their international currency reserves. The government has the funds to meet its debt obligations, but sanctions are hampering its ability to pay, he said, adding that his country is approaching about $ 300 billion of its $ 640 billion in currency reserves.

Russia’s Ministry of Finance has said it will advise banks to pay in dollars or euros. He explained that the money could be paid in rubles and converted into another currency only if the country’s reserves were frozen.

“The only way to avoid default is to send all the money in dollars,” said Trang Nuen, JPMorgan’s emerging market strategist.

Officials are trying to assess the potential impact of war and sanctions on Russia in the global financial system. In late February, members of the Financial Stability Oversight Board, part of the Treasury, received an explanation of international market developments related to Ukraine, and pointed out that the US financial system continues to function properly.

Direct exposure

In a similar vein, Andrea Enrique, chairman of the European Central Bank Council, said that the eurozone could control the direct exposure of banks to Russian assets.

For example, Russian and Ukrainian debt securities account for about 0.5% of the eurozone investment fund’s debt balances.

“So far, we have not seen anything particularly disturbing,” he added, even in indirect contact with Russia. He said there were still risks in Russia’s credit default and financial markets, especially in the wake of widespread fluctuations in oil, gas and other commodities.

If Russia does not repay its sovereign debt or pays in rubles, the securities may find it difficult to obtain payment through the courts, especially since Russia does not grant its sovereign exemption, restricting the litigation capacity of the securities.

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