Russia is due to make a key interest rate payment on its foreign debt on Wednesday, but with sanctions strangling its economy, Moscow is threatening to repay international bondholders in rubles. Finance Minister Anton Siluanov pointed to measures that have frozen nearly half of Russia's $643B in foreign reserves, as well as the heavy strain on its financial system. Moscow is specifically set to make a combined $117M in interest payments on two dollar-denominated bonds - which are currently trading at $0.20 on the dollar - though neither of them are allowed to be repaid in rubles.
Snapshot: It will be up to the ratings agencies to consider if this will be deemed a default, given the numerous technical factors that go into the classification. Russia also has a 30-day grace period after the coupon payments come due, so it will be at least another few weeks before a formal default could be declared. The ruble has already collapsed by more than 40% since the invasion of Ukraine on Feb. 24, and this time around there won't be any help from the West.
"In terms of servicing debt obligations, I can say that no longer we think of Russian default as improbable event," said IMF Director Kristalina Georgieva. "Russia has the money to service its debt, but cannot access it." A "deep recession" is in store for the country, she added, though it's unlikely to trigger a global financial crisis as banks' global exposure to Russia is "definitely not systemically relevant."