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Russia’s furious response to ‘default’


Russia has defaulted on its foreign debt, a major ratings agency has announced, sparking an angry warning from Moscow.

Russia has defaulted on its foreign debt after it refused to make bondholder payments in any other currency than rubles, credit ratings agency S&P has declared.

The announcement was met with fury in Moscow. Finance Minister Anton Siluanov said Russia would start legal proceedings if it was declared in default by the West.

Russia last week paid some of its $A876 million ($US650 million) foreign dollar debt in rubles after it was unable to process the payment in foreign currency due to sanctions over the invasion of Ukraine.

It is unlikely that investors will be able to convert the rubles into the dollar equivalent of the amount Russia was obligated to pay. Russia has a 30-day grace period to make the payments before it will officially be in default.

“We think sanctions on Russia are likely to be further increased in the coming weeks, hampering Russia’s willingness and technical abilities to honour the terms and conditions of its obligations to foreign debtholders,” S&P said in a statement.

Russia responded to S&P’s declaration by threatening legal action.

“We will go to court because we have taken all the necessary measure to ensure that investors receive their payments,” Mr Siluanov said in an interview with the Izvestia newspaper.

“We will present to the court our invoices confirming our efforts to pay both in foreign currency and in rubles,” he said, without specifying which legal body Moscow would turn to.

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Credit ratings agency S&P on Saturday said Russia had gone into “selective default” after it repaid dollar-denominated bonds that matured last week in rubles.

The designation, however, only affected Moscow’s payments in foreign currencies while the rating for its ruble payments remained unchanged.

“Russia has tried in good faith to repay external creditors by transferring the corresponding amounts in foreign currency to pay our debt. Nevertheless, the deliberate policy of Western countries is to artificially create a default by all possible means,” Mr Siluanov said.

“If an economic and financial war is waged against our country, we are obliged to react, but while fulfilling our obligations,” he added.

For several weeks, Russia avoided the danger of a default, as the US Treasury allowed the use of foreign currency held by Moscow abroad to settle foreign debt.

However, last week the US barred Russia from making debt payments using funds held by American banks.

The Russian finance ministry said on Wednesday it was forced to make some repayments to foreign debt-holders in rubles as they fell due on April 4.

Russia’s economy has been hit hard after strict sanctions were imposed by countries around the world following the invasion of Ukraine.

The ruble nosedived soon after the “special military operation” was announced by Russian President Vladimir Putin and the MOEX Index was closed for weeks.

Russia’s GDP is expected to shrink 15 per cent this year.

There’s been an “unprecedented shock to the Russian economy” Institute of International Finance deputy chief economist Elina Ribakova told CBS News.

“Russia has not had a recession of this size since the 1990s.”

However, the ruble has since recovered, mainly due to “manipulation” by Russian authorities, US Secretary of State Antony Blinken said, who warned its comeback wasn’t sustainable.

“People are being prevented from unloading rubles,” Mr Blinken said on NBC’s Meet the Press. “That’s artificially propping up the value. That’s not sustainable. So I think you’re going to see that change.”

Russia’s central bank has also imposed strict capital controls to counter the severe sanctions imposed by Western countries.

This morning 84.75 rubles were equal to one US dollar, a similar to the exchange rate to 24 February, when the war began.

– With AFP

Originally published as Moscow threatens legal action as S&P declares it has defaulted on foreign debt



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