Russia defaulted on its exotic debt for the first time since 1918, missing a deadline for interest payments on Sunday.
According to Bloomberg, yesterday the grace period for about $100 million in interest repayments owed since May 27 expired, a deadline that is considered an event of default if not settled.
Russia, on the other hand, has the money to pay the $100 million in interest and is willing to pay, but sanctions by the West have made it impossible to transfer the amount to international creditors.
The Kremlin is determined to avoid bankruptcy, which is a major blow to the nation's prestige.
The Russian finance minister called the situation a "farce."
The $100 million interest payment was due on May 27. Russia, for its part, says the money was sent to Euroclear, a bank that would then distribute the payment to investors.
But that payment is stuck there, according to Bloomberg, and the money has not reached creditors.
At the same time, some Taiwanese holders of Russian euro-denominated bonds have not received interest, according to Reuters news agency, which cited two sources.
Because the money had not arrived within 30 days of the due date, which was Sunday afternoon, it is considered a financial default.
Euroclear has not said whether payment has been blocked, contenting itself only to say it is applying all sanctions.
The last time Russia defaulted on an exotic debt was in 1918, during the Bolshevik Revolution, when Vladimir Lenin refused to pay the debts of the Russian Empire.
Russia's last bankruptcy of any kind was in 1998, when the country was rocked by the ruble crisis during the chaotic end of Boris Yeltsin's regime.
At the time, however, Moscow failed to settle payments on its domestic bonds, but managed not to default on its foreign debt.
However, Western sanctions on Russia over the invasion of Ukraine have limited the country's access to international banking networks that process payments from Russia to investors around the world.
The Russian government said it wanted to make all its payments on time, and so far it had succeeded. About $40 billion of Russia's debts are in dollars or euros, with about half held outside the country.
And the country's default had seemed an inevitable scenario since the US Treasury Department decided not to renew the special exemption in the sanctions rules allowing investors to receive similar interest payments from Russia, which expired on 25 May.
The Kremlin, according to international agencies, now seems to have accepted this inevitable scenario as well. By decree of June 23, it states that all future interest payments will be made in rubles through a Russian bank, the National Settlements Depository, even when the contracts state that they should be in dollars or other international currencies.
According to the Ria Novosti news agency, Russian Finance Minister Anton Siluanov admitted that foreign investors "could not receive" the payments.
He said this is for two reasons: "The first is that foreign infrastructure banks, settlement and clearing systems, depositories are prohibited to conduct any operations related to Russia. The second is that foreign investors are explicitly prohibited from receiving payments from us."
Because Russia wants to pay and has the money to do so, he insists that this does not amount to actual bankruptcy, which usually happens when governments refuse to pay or their economies are so weak that they cannot find the money.
"Everyone who knows understands that this is not a default," RIA Novosti reported. "This whole situation looks like a farce."
Although the default is a symbolic blow, the treaty will have few direct practical consequences for Russia.
Nations that routinely default on similar payments are unable to borrow more money, but Russia is already effectively barred from borrowing because of Western sanctions.
In any case, Russia reportedly earns about a billion dollars a day from fossil fuel exports, and according to statements by the Russian Finance Minister, as of April, the country has no plans to borrow more.
By Bloomberg
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