In a first-of-its-kind move, Russia announced yesterday that it would repay foreign loans for dollar-denominated bonds in its local currency, the ruble, which could threaten its position in global markets.
The Russian Ministry of Finance said in a statement that “a foreign bank refused to implement instructions to pay an amount of 649.2 million dollars due on the fourth of April this year, forcing the ministry to seek the assistance of a Russian financial institution to make the necessary transfers … in the currency of the Russian Federation.”
For several weeks, Russia succeeded in staving off the threat of debt default, as the US Treasury allowed the use of foreign currencies owned by Moscow abroad to pay foreign debts. However, the US Treasury announced on Tuesday that it will no longer allow Russia to pay its debts with dollars deposited in US banks, which increases pressure and the risk of insolvency.
“It is difficult for Russia to avoid a sovereign debt default,” said Timothy Ash, analyst at Blue Bay Asset. And when she defaults, the markets will judge her on that basis. Investors did not get their money and that will remain engraved in our minds.”