External debt of Russia looks inevitable after the country’s financial system went through a challenging week.
Last week the U.S. Treasury haled dollar debt payments from Russia’s accounts in U.S. banks. After which when the hard-currency payment was blocked, Russia breached the terms on two bonds by paying investors in roubles instead of dollars. The developments pushed Russia on the brink of collapse.
Earlier, a freeze on Russian central bank’s foreign reserves unplugged Russia from the global financial system.
Global rating agency S&P said on Saturday that it had declared Russia in a selective default after it used rubles to make a payment on a dollar-denominated bond on April 4.
Meanwhile, ratings agencies are abandoning coverage because of an EU ban on providing ratings to the country. Moody’s Investors Service and Fitch Ratings have already withdrawn, S&P Global said in its statement Saturday that it will respect the April 15 EU ban and all its ratings on Russia were subsequently withdrawn.
“Western countries are trying in every possible way to make Russia declare default,” Russian Finance Minister Anton Siluanov told state news service Tass this week.
He also said Russia will use “other mechanisms” to make payments.
“If Russia does not manage to organize a payment route to bondholders within the grace period and no dollars arrive into the accounts, then it is a default, the CDS will trigger,” said Lutz Roehmeyer, chief investment officer at Berlin-based Capitulum Asset Management, as reported by Bloomberg.