Putin’s ruble woes intensify ahead of crunch deadline: ‘Russia is already in default’

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The Russian economy is being decimated by sanctions in response to President Vladimir Putin’s invasion of Ukraine, which began eight weeks ago. The US has spearheaded global moves to punish Russia financially, with President Joe Biden unveiling new sanctions against the country two weeks ago over “major war crimes” near Kyiv. Speaking at the time, Mr Biden said: “We will keep raising the economic cost and ratchet up the pain for Putin and further increase Russia’s economic isolation.”

The impact of such sanctions is now laid bare as Russia has just two weeks to pay millions of dollars of debt or risk a default.

On April 4, Russia paid $650 million worth of bond payments in rubles, the country’s official currency.

The payments followed the US Treasury banning Russia from making debt payments using dollars held at American banks.

Russia’s Finance Ministry claimed foreign banks had refused to accept payment for the money the country owes in dollars.

The country will be considered to have technically defaulted on its debt if it pays dollar-denominated debts in rubles, ratings agencies have said.

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Ratings agency S&P Global has already placed Russia in the “selective default” category.

The country is now required to settle the debt by May 4 when a 30-day grace period expires, Moody’s said earlier this month.

If Russia fails to meet the payment deadline, it will be the first time the country has defaulted on its foreign debt for more than 100 years.

Its last default came in the Bolshevik Revolution in 1918 when the Soviet Union repudiated the debt made by the Tsarist government.

Kristalina Georgieva, the head of the International Monetary Fund, said in March: “We no longer think of Russian default as improbable.”

Sovereign debt expert Tim Samples at the University of Georgia claimed the road ahead for Russia’s debt was likely to be complicated.

He told the New York Times: “This points to the squishiness and patchwork nature of sovereign debt markets.

“I think this is set to be convoluted and disputed for a variety of reasons.”

It remains unclear what will happen if Russia does default on its foreign debt by not making payments due in the correct currencies by May 4.

Three weeks after that deadline, on May 25, US bondholders will no longer be able to accept Russian debt payments.

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The temporary move, approved by the Treasury, means that Russia will be unable to make the repayments due to contracts stipulating those payments must be made in dollars.

Some experts, like Timothy Ash, a strategist at BlueBay Asset Management, already consider Russia to be in default.

He told the New York Times: “If Russia doesn’t pay on time, doesn’t pay in the currency in the contract, that’s a default — it’s crystal clear.

“For all intents and purposes, Russia is already in default.”

Russia has already claimed that any default would be an “artificial” result of US sanctions and has vowed to fight its case in court.

Kenneth Rivlin, a partner at law firm Allen & Overy’s in New York warned bondholders to start planning how to recoup the money owed by Russia.

He told Reuters: “Bondholders are doing scenario planning now. If they’re not, they should be.

“I think it’s going to be a long and winding road for bondholders to recover.”

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