Russia Defaults on Bond Payments After US
April 12, 2022
The Russian government has defaulted on its
sovereign debt for the first time in more
than a century, according to S&P Global, the
ratings firm that tracks the
creditworthiness of governments and major
businesses around the world.
The news comes days after the Russian
government, unable to access U.S.-dollar
reserves in foreign banks, made an April 4
payment of $649 million in Russian rubles.
Russia’s failure to make payments to its
bondholders was a result of the various
sanctions that have been put in place to
punish the country’s government for the
ongoing conflict in Ukraine. Last week, on
the day that the payments were due, the U.S.
Treasury announced that it would tighten
restrictions on Russia’s foreign reserve
assets held in U.S. banks.
Despite the sanctions imposed in the days
after February 24 when Russia began the
latest conflict, American banks had been
allowed to process certain Russian
government payments, including those to
As a result of the Treasury's change of
position, JPMorgan Chase, the bank where
Russia holds large deposits of U.S. dollars,
was unable to process the payment due on
Rubles no substitute
The move by the U.S. left Russia the option
of paying its bondholders using hard
currency held by the country’s central bank.
But on that same day, Russia instead
transferred what it said was an equivalent
amount of Russian rubles to accounts set up
for bondholders from “unfriendly nations”
and declared the payments to have been made
On Monday, S&P Global confirmed that the
transfer of rubles did not constitute a
payment of Russia’s debt because the
contract specifically required that payment
be made in dollars.
Technically, there is a 30-day grace period,
which gives Russia until early May to make
the payment and avoid default. However, S&P
Global said in a statement it does not
expect the country to be able to make the
payment at all.
“Sanctions on Russia are likely to be
further increased in the coming weeks,
hampering Russia’s willingness and technical
abilities to honor the terms and conditions
of its obligations to foreign debt holders,”
the company said.
In an interview with the pro-Kremlin
Izvestia newspaper published Monday, Russian
Finance Minister Anton Siluanov described
the default as artificial because Russia has
the means to make its payments but is being
prevented from doing so.
“Russia tried in good faith to pay off
external creditors,” he told the newspaper.
“Nevertheless, the deliberate policy of
Western countries is to artificially create
a man-made default by all means.”
Siluanov said the Kremlin will take legal
action in an effort to reverse the effects
of the default.
“Of course we will sue, because we have
taken all the necessary steps to ensure that
investors receive their payments,” he said.
However, he predicted that the process would
be long and difficult.
While sovereign defaults are not unheard of,
the circumstances around Russia’s failure to
make its dollar-denominated payments are
somewhat unusual, said Anna Gelpern, a law
professor at Georgetown University and a
fellow at the Peterson Institute for
In the past, sanctions have resulted in
countries defaulting, usually because they
contribute to the economic destruction of
the countries subject to them, draining them
of the money they need to make payments.
Russia is not really short of cash, given
its large foreign reserves and its continued
receipt of income from the sale of oil and
“It’s not unusual in that the payment system
is a point of pressure,” Gelpern told VOA.
“It is unusual in that the point of pressure
is not economic or financial but political."
A bit of ‘theater’
“In a way, it’s all theater, right?” Nicolas
Veron, a senior fellow with Bruegel, the
Brussels-based economic think tank, told VOA.
“There's no economic driver for this. It’s
entirely political, depending on what the
U.S. allows, or doesn’t, with the exception
that Russia has no appetite for getting
their limited amounts of hard currency out
of the country,” Veron said.
He pointed out that as a practical matter,
the default will change little for Russia in
the near term.
“The fundamental equation of Russia at this
point is that they have a current account
surplus, because of all the oil and gas that
they sell and the high prices, thereof,”
Veron said. “They get more money from the
rest of the world than they have to spend
there, especially as the economy is
collapsing, and therefore imports are going
down and not up.”
Future impact likely small
most countries, a sovereign debt default
might trigger a cascade of financial
calamities, most notably making it extremely
difficult to borrow on good terms in the
future. But according to Gelpern, Russia has
damaged itself to a point at which normal
decisions about creditworthiness won’t be at
the top of investors’ minds going forward.
“In the markets, waging genocidal war and
getting sanctioned seems to be somewhat
distinct from the sorts of things we think
of going into your market reputation for
repaying your debts,” she said. “So, to the
extent that this episode reveals anything,
it tells investors … that they can't count
on Russia to be a member in good standing of
the global economic system, in the eyes of
the governments that have the power within
Additionally, she noted that the brutality
of the assault on Ukraine and its people
virtually guarantees that the Russian
Federation will be the subject of a large
number of court claims in the coming years,
and that they will likely tie up Russian
Federation assets that were stranded abroad
after sanctions began to take hold.
“There are so many different pots of assets
strewn about the world,” Gelpern said,
“because they were evidently not prepared
for the breadth of the sanctions.”