Rome, March 9, 2022 – La Russia risk the “default imminent “: the agency Fitch further downgraded the rating of Moscow which, due to the developments of the war and the consequent ones sanctions of the West, passes from B to C: in the short term, therefore, Russia may no longer be able to repay its own debt. Fitch, like the other major rating agencies, had already classified Russia as a country at risk of default at the beginning of March, calling Russian bonds junk.
The further demotion a few days later is the result of “developments that have undermined Russia’s willingness to pay off its public debt even more”. Among these developments is the decree passed in Russia on March 5 that could potentially force the renaming of foreign currency sovereign debt payments to local currency for creditors of certain countries and the Russian Central Bank’s decision to limit the transfer of coupons. of Russian local currency debt to non-residents. In general, the agency warns that the increase in penalties and proposals to limit the energy trade Russia raise the likelihood of a Kremlin policy response that includes at least a selective default on its sovereign debt obligations.
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What does default mean: the causes
In economics the default (literally default) is the inability of a debtor to repay his own bondsor his debt. The default of a country sanctions its bankruptcy: the state becomes insolvent towards its creditors, it is unable to repay the loan received. In Russia it has already happened in 1998year of the great crisis financial, which had many other causes, although, even in that case, there was a war – the one in Chechnya – in the background. How did it come to this point?
The progressive unreliability of Russia as a debtor is due to a series of factors, which are the consequence of the sanctions imposed on Moscow: the closure of the bag and the fall of the ruble (today it reached an all-time low on the euro), the surge of interest rates imposed by the Russian central bank which have reached 20 percent, the blockade of capital outgoing, the freezing the use of reserves in the currency of the Central Bank of Russia. Added to this is the exclusion from the international payment circuit, the so-called Swift. News yesterday then, the stop of imports of Petroleum And gas give it United States and Europe’s decision to progressively distance itself from its energy dependence on Russia. There is enough to consider the Russian debt close to collapse.
A date considered key by analysts is the March 16when coupons of 117 million expire (a further tranche of 400 million is expected at the end of the month, according to Milan and Finance, at the beginning of April, a two billion bond expires). It is true that repayments to foreign investors can be blocked, on pain of a further aggravation of the financial crisis and an acceleration towards default.
What are the consequences?
Sanctioned Russia has already announced that it will pay in rubles the “bad creditors”. If foreign investors begin to receive rubles even on bonds that provide for repayment only in dollars, or euros, it could be the beginning of an even greater financial earthquake than is already happening. For example: le coupons on bonds maturing on March 16 they do not provide for payment in Russian currency: it would be the technical default. The Russian Ministry of Finance he assured a few days ago that “he will fully honor the obligations regarding the service and withdrawal of Russian government bonds” in the foreseen time frame, but the crux of payment in local currency and not in dollars remains.
A declaration of insolvency would imply a financial isolation of the country, even more serious than the current one. The status of default is difficult to overcome, and it permanently labels a state. Scope believes that the economic, financial and political consequences of the current crisis “will seriously damage the medium-term macroeconomic prospects, financial stability and already weak investment conditions of Russia, resulting in reduced access to financial and foreign capital markets, increased outflows of capital, capital controls, more restrictive financial conditions and reduced financial reserves “(Quifinanza.it).
But the consequences would of course not only exist for Russia. Note the Corriere.it that Moscow has the equivalent of “two trillion dollars.” Of debts (excluding those of banks) and 700 billion of debt in the form of bonds, according to data from the Bank for International Settlements. A substantial part of these stocks are in the West, without considering the exposure of American or European companies to Russian equity assets “. Sure, theto European Central Bank and the Federal Reserve they are ready to pour liquid assets in a very short time, even to the central banks of the countries closest to Russia in terms of trade: Poland, Hungary, Slovakia, the Czech Republic. But a boomberang effect is certain.
Another chapter concerns the countermeasures to the sanctions that Russia could take: Putin has already partly announced that he will close the taps of his gas on which Europe depends. The risk of an energy crisis in the EU and in Italy is real.