Russia’s full default on foreign debt was the first since the Bolshevik revolution in 1917 and will further distance Putin’s state from the global financial system following its invasion of Ukraine.
About US$40bn is owed, with half of that to international bondholders, but Russia claimed the so-called default is artificial as it has the money but sanctions froze its foreign currency reserves held abroad.
“There is money and there is also the readiness to pay," Russian finance minister Anton Siluanov said last month, before adding: “This situation, artificially created by an unfriendly country, will not have any effect on Russians’ quality of life.”
The country faced a Sunday deadline to meet a 30-day grace period on interest payments originally due 27 May.
Before the war began, Russia had roughly US$640bn in foreign currency and gold reserves but most of it was frozen overseas.
Who’s impacted?
Some Taiwanese holders of Russian bonds denominated in euros said they did not receive the payments, according to Reuters who cited two other sources.
It was unclear if Belgian-based lender Euroclear’s rouble payment was blocked or whether Putin’s state was in default as the money was in the incorrect currency.
There were almost certainly other nations impacted but they have failed to comment as of yet.
What does this mean for the economy and bondholders?
Western sanctions on the war sent foreign companies exiting from Russia at a rapid pace and disrupted the country’s trade and relationships with the globe, with the default expected to exacerbate Putin’s problems of isolation.
Although the global impact on worldwide financial systems is expected to be limited, according to analysts, with its financial links already in turmoil.
Bondholders, however, may be subject to large losses – those that invest in funds in emerging market bonds, for example.
Although it could have been worse, with Russia only playing a small hand in market bond indexes, which should limit losses somewhat.
While the war has caused global devastation in terms of human suffering and surging prices, default would “definitely not [be] systemically relevant,” Kristalina Georgieva, International Monetary Fund managing director, said.