Russia will fall into the caste of North Korea in the eyes of investors if it defaults on paying interest on its debt today, Wednesday. It will hardly ever receive war reparations. There will be a big bill for Western taxpayers, writes financial journalist Anna Karismo.
16.3. 12:00 • Updated March 16th. 12:10
Ukraine would have had every chance of a thriving economy over the past decade, but Russia has made hopes futile time and time again.
The corona pandemic struck in 2020, and Ukrainian tourism, for example, has not recovered since then due to Russia’s accelerated hostilities. It still managed to attract foreign investment in the interest year, but not last year.
Who will ultimately pay for the violins when Russia bombs cities, bridges and roads to the ground? Does home insurance replace when families have to collect bundles and sweaters and flee to a neighboring country?
It is pointless for Russia itself to expect compensation for the damage, as the country’s leadership will hardly immediately admit that it has acted in violation of international rules. Compensation for war is usually agreed in the context of peace agreements. However, some credits can be taken from property confiscated abroad in Russia.
Russia itself is falling into poverty because of sanctions and war, so it is likely that it will be working full time to keep its own people in the bread for decades to come. It will hardly be able to break free from sanctions – before paying war reparations.
European taxpayers have already disappeared, thanks in part to the fact that last year the European Investment Bank (EIB) lent more than EUR 500 million for the construction of infrastructure in Ukraine alone.
The shareholders of the Investment Bank are all 27 EU Member States.
The state either pays or does not pay
Compensation for the loss of property of private citizens is at war in the account of their home state.
Private home insurance usually has a clause stating that the insurance company will not pay for damage resulting from war or terrorism. This is also the case with Finnish insurance companies.
After homes are destroyed in a conflict, people seek compensation from their home country, which then tries to get redress from the attacking party.
Ukraine has already received emergency aid from the International Monetary Fund, for example, but after the war a billion or so is not enough. That is when large-scale reconstruction is needed, which Ukraine alone will not be able to do.
The Ukrainian state launched last week Russia to pay –website (go to another service), which collects information about property and objects destroyed in the attack. There, anyone can report the damage of war.
In the future, the Ukrainian government intends to use the information as evidence in international courts when claiming damages from Russia. During the first two weeks of the war, reports have been received from 1,800 citizens, municipalities and businesses.
Is Russia even servicing its old debts?
Today, Wednesday, is one milestone when Russia should pay the coupon rate on its debt borrowed from abroad over one hundred million euros for the first time since the start of the war.
Failure to make the payment could result in the country’s first default on foreign currency loans since the 1917 revolution. Russia has never failed to pay its foreign debts.
During March, interest on the debts of the state and state-owned companies will be paid several times. Right at the beginning of April, Russia should repay its loan capital by almost two billion euros for the first time.
Yes, the country will still be able to make its payments – at least as long as it can continue to sell oil and gas. News agency Bloomberg (you switch to another service) according to the Putin administration, it plans to pay its debts in dollars in rubles because the sanctions imposed on it because of the war will prevent dollar transfers.
Rubles are not worth anything, so paying with them would mean that the Russian state would sink in the eyes of investors. “bankruptcy class” (you move to another service) that is, the same group as countries like North Korea and Venezuela.
The Russian state and large companies such as Gazprom, Lukoil and Sperbank have a total debt of just under EUR 150 billion to international investors. The receivables of Finnish pension companies in Russia are very small.
As a result of the sanctions, there is a technical problem with the payment of interest and government debt in Russia. With most of the local banks excluded from the international SWIFT payment information system, it is not clear which routes Russia can pay its debts to international banks.
Ukraine’s economy one of the temptations for Putin
Ukraine’s economy has grown in recent years, despite the continuing threat of war posed by Russia. It has been one of the most advanced IT countries in Eastern Europe.
U.S. Department of State 2021 in investment estimates (you switch to another service) it is said that “Ukraine offers a large consumer market, a highly educated and cost-competitive workforce, and a wealth of natural resources.”
Like Putin, foreign investors have seen Ukraine’s potential. In recent decades, hundreds of foreign companies have opened subsidiaries and offices in Ukraine.
Without the threat of Russia, there could have been more investment. Investors have avoided eastern Ukraine and invested in the western part of the country, which has become important for the German car industry, for example.
This is ‘s daily analysis of the current theme of the Russian invasion. You can discuss the topic until 11pm on Thursday.
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