Russia On The Verge Of A Massive Default

Illustration (doc. between)

WASHINGTON - A series of economic sanctions imposed by the United States (US) and its allied countries are believed to have put Russia in the threat of a massive default. Fears that Russia will not be able to pay external bonds worth 400 billion US dollars, the first largest since the aftermath of the Bolshevik revolution in 1917, are now growing among global market participants.

"Russia along with Belarus is in default territory. Indeed, there has been no assessment from the agency (rating agency) as a selective default, but (we believe that Russia is) very close (to default)," said World Bank Chief Economist, Carmen Reinhart, as quoted by Antara. reported by Reuters, Thursday, March 10.

Two days earlier, on Tuesday, March 8, Fitch had downgraded Russia's debt rating by a further six notches into junk territory, from "B" to "C". to "C" from "B," In its release, Fitch said that a default condition would soon occur in Russia, given the unavoidable impact of US sanctions and trade restrictions, and would certainly damage the red bear country's paying power.

According to Reinhart, the impact of the financial sector so far has been limited, but risks could arise if European financial institutions are more exposed to Russian debt than previously thought.

About half of Russia's hard currency bonds are held by foreign investors and Moscow must pay $107 million in coupon payments for the two bonds by Wednesday, March 16. Russian companies are believed to have less than $100 billion in international bonds in circulation.

The Bank of International Settlements noted that foreign banks have more than $121 billion in exposure to Russia with most of it concentrated in European lenders. "I worry about what I don't see," Reinhart said.

If you look at the condition of financial institutions in Russia, according to Reinhart, the available capitalization position looks good. However, the balance sheet is still worrying, especially in Russia's private sector.

At the same time, Ukraine is also expected to be in need of debt relief policies, due to massive war-related spending and a heavy debt burden of US$94.7 billion by the end of 2021.

Although the Ukrainian government has promised to pay off all its debts on time and in full, Reihart believes that the country, which is being bombarded by Russia from all over, deserves debt relief.

"It is reasonable to expect Ukraine to seek cash flow assistance, and express confidence that creditors will accept, given the current situation. Ukraine could also miss an upcoming coupon payment, at least during the grace period, without its credit rating suffering," stressed Reinhart.