© AFP
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Credit rating agency Standard & Poor’s (S&P) believes Russia has failed to repay government bonds in foreign currencies. That happened when Russia repaid part of a dollar loan in rubles. Failure to pay in dollars within thirty days will result in bankruptcy.
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Source: De Telegraaf, Bloomberg
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S&P also lowered its rating for Russia’s foreign-currency government bond issuance to its lowest value. This means that, according to the credit rating agency, Russia can be considered bankrupt in this regard. S&P argues that even if the country pays its debtors in rubles, the question is whether those debtors can exchange that payment for the value they should have received in dollars. S&P is also considering more sanctions against Russia.
Since the Russian invasion of Ukraine, the West has imposed a series of sanctions on the country, many of which are financial. For example, Russia’s access to foreign currencies that it held with foreign central banks was cut off, making it more difficult for the country to pay debts to foreign parties. Last week, a US sanction also prevented Russia from using US banks to pay off debts.
Bankruptcy
Bond traders now estimate the chance of a bankruptcy of Russia this year at 90 percent. The last time the country defaulted was in 1998, but then only on domestic debt. The last time this happened for foreign debt was after the February Revolution of 1917.
The many sanctions also affect the people of Russia. The Russian central bank unexpectedly lowered interest rates from 20 percent to 17 percent this week to give the economy some support. At the same time, inflation shot up to 16.7 percent year on year. In February it was still 9.2 percent. Food became 15.7 percent more expensive and fruit and vegetables even almost 35 percent.
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