Moscow pays debts in dollars in rubles and denounces the “farce” of a default

Russia has made interest payments on its dollar-denominated debt in roubles, the Russian Finance Ministry said on Thursday, due to Western sanctions that have raised the risk of a default for months.

Moscow pays debts in dollars in rubles and denounces the “farce” of a default

Russia has made interest payments on its dollar-denominated debt in roubles, the Russian Finance Ministry said on Thursday, due to Western sanctions that have raised the risk of a default for months.

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Entirely denying the risk of a default by Russia, Finance Minister Anton Silouanov accused “foreign counterparties” of “refusing to make payments in foreign currencies, which is a situation of force majeure for us”, thus creating the conditions for an artificial default.

“Anyone in the know knows that’s not a flaw. Honestly, this whole situation looks like a joke,” he quipped.

“Any day an investor wants or can come and get his money, the equivalent in rubles will be waiting for him,” he warned.

In a statement on Thursday, his ministry said it had paid installments in rubles on its foreign debt maturing in 2027 and 2047 totaling 12.51 billion rubles, or nearly $235 million.

"Thus, the obligations (...) of the Russian Federation are fulfilled in full by the Ministry of Finance of Russia," the ministry added.

The money was transferred to the National Settlement Depository (NSD), a centralized Russian body responsible for depositing financial securities traded in the country and sanctioned by the European Union.

The ministry explained that it was based on a new temporary payment system that came into effect through a presidential decree issued on Wednesday.

This system provides that, when a due date arrives, the Ministry of Finance transfers the ruble equivalent of the funds to the NSD, which takes care of repaying creditors in rubles at the rate of the Russian central bank, in order "to ensure the 'maximum equivalence of payments'.

If the creditors are Russian, the funds are transferred "bypassing foreign intermediaries", specifies the Ministry of Finance.

But if the securities are held abroad, the funds will be transferred to special ruble accounts, a mechanism similar to that used for gas payments.

Anton Silouanov assured that "in order to protect investors against the risk of changes in the exchange rate, these funds will be indexed at the current rate of the ruble (...) until the time of the actual payments to the owners".

At the end of May, Russia announced that it would repay its foreign debt in rubles, no longer able to do so in dollars because of the sanctions, despite its significant financial liquidity.

However, a repayment in a currency other than that in which a debt was denominated exposes the debtor to a default on his debt.

Since the three major international financial rating agencies no longer rate Russia, it is up to an organization bringing together major international banks (Credit Derivatives Determinations Committees) to assess whether or not Russia misses payments to its creditors.

At the beginning of June, this creditors' commission claimed that the country had not honored the payment of interest on its debt to the tune of 1.9 million dollars due on April 4.

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