Russian Default

Russian Default

The last time a Russian default occurred was in 1998, but could the next one be as significant as the Bolshevik revolution a century ago.

Russia narrowly avoided a default this week, Mach 16, on the $117 million in interest payments it owes to investors by ordering the debt payments on the country’s frozen dollar reserves, according to Anton Siluanov, Russia’s finance minister.

But here is the kicker, it is unclear whether investors will receive their money because Russia’s foreign reserves are frozen.

Russian sovereign investors could be staring down the barrel of another major Russian default

Russian default would be bad but not that bad.

Russia had about $40 billion of foreign currency debt at the end of last year, with about half of that held by foreign investors, according to JPMorgan.

So how would a Russian default on $40 billion on foreign currency debt compare with other defaults in history?

Greece, 2015 default June 2015 missed a $1.7 billion payment. Ecuador, 2008 suspended payment on a$ 9.9 billion payment. 

Mexico, 1982 could no longer service its debts of $86 billion.

The largest debt default in history was Argentina, 2001, with around $100 billion in debts unable to make interest payments.

The “possibility or impossibility of fulfilling our obligations in foreign currency does not depend on us,” Siluanov said, according to RT, warning that the payment might not go through if the US disallows it.

If the US blocked the payment, Russia said it would try to pay in rubles rather than dollars. But US and EU sanctions on Russia in retaliation for the Ukraine invasion have converted the rubles into rubble. It is practically a worthless currency.

Fitch Ratings insist that all payments be made in US dollars. Alternatively, it would constitute a default. 

Twenty-first-century warfare is done with sanctions and banks, not tanks.

With Russian foreign reserves frozen and another $2 billion payment scheduled for early April, a Russian default and bankruptcy of the economy could now be in the cards

The West’s goal is crystal clear; collapse the Russian economy, trigger a coup d’etat, push Putin out and install a western socket puppet. The prize would be the New Silk Road, its infrastructure and natural resources running on the USD. If the plan is successful US hegemony remains intact with USD as the reserve currency for at least another generation. 

With a Russian default looming it is Europe’s banks who will shoulder the burden of this economic war

European banks will be hit the hardest.

Italian and French banks have the largest Russian exposure, representing just over $25 billion each at the end of September, followed by Austrian banks with $17.5 billion, Bank of International Settlements data shows.

US banks’  exposure totals $14.7 billion, BIS data shows.

But as we noted in a piece entitled Ukrainian Crisis, Ukraine is the breadbasket of Europe.

Those tractors should be planting seeds about now in early Spring so that roots can grow and strengthen before winter sets in. A lengthy war going into Spring could be the catalyst for food hyperinflation In Europe.

Russian default and Ukrainian war will trigger a liquidity crisis in more ways than one, bearing in mind cost of necessities is already spiralling

With discretionary spending cuts, and recession looming standby for less hawkish central banks and maybe even food rationing.

Perhaps it is not a Russian default that is the problem but a pending food crisis and political tensions that go with it.