It is a symbolic event, a committee of creditors composed of major international financial institutions organized auctions on Russian debt. A step which leads in fact to a default of payment by Russia, even if the word “default” has never been spoken for the moment.
The purpose of these auctions is to compensate investors who have taken out insurance against the default in payment of the Russia. Because last June, Russia failed to pay $1.9 million in interest on its sovereign bond. This situation put it on the brink of default. A first since 1918 and the episode of Russian loans launched by Tsarist Russia on Western markets.
The creditors’ committee, made up of investment funds, major international banks and insurers, is groping its way. Eight Russian bonds were auctioned. The money raised will be used to compensate injured investors. A usual operation in the case of payment defaults.
But this default in payment, in fact, does not change much. Russia is anyway cut off from international capital markets since its invasion of Ukraine at the end of February.
The Russian external debt weighs for 40 billion dollars, that is to say 20% of its GDP, whereas the surplus of its current account rises to 166 billion dollars thanks to the sales of hydrocarbons. Moscow replies that it has the means to reimburse, but cannot do so because of the sanctions. The United States prevents him from paying his debt in dollars.
Can this situation last for long? Hard to say. Russia does not inspire the confidence of foreign investors. However, his companies badly need it.
►Also read: Sanctions weigh heavily on the Russian economy, according to a study by Yale University