US does not prevent Russia from paying debts, defaults remain / Article

Since the invasion of Ukraine, international credit rating agencies have downgraded Russia to a level that effectively defaults the country. This serves as a recommendation not to lend money to the Russian government, as there is a high chance that the money will lose its investment. There was speculation in the media this week about the possibility of expecting a default this week, given that Russia had to pay $ 117 million in interest payments.

However, at the end of the working week, there were reports that Russian payments in dollars had taken place. Consequently, the possibility of default is eliminated for the time being. The US Treasury Department ‘s explanatory notes on sanctions also state that

sanctions against the Central Bank of Russia do not prevent it from repaying debts to US individuals until May 25.

After that, you will need a special license to receive payments.

Olga Lielkalne, an expert from the Bank of Latvia, calls this an understandable step.

“The goal is essentially to weaken Russia’s ability to finance the war. It would be very contradictory if sanctions prevented the repayment of debts, because in the current circumstances, if the debt is not repaid, the currency remains with the state,” Lielkalne explained. “It would improve Russia’s financial position even in the short term.”

In her turn, Inna Steinbuka, the head of the Fiscal Discipline Council, said that permission to pay off debts is more a boon to lenders than to Russia. She believes that Russia’s default is a real possibility anyway, as the financial sector is deeply weakened.

At the same time, it would not be worth paying too much attention to defaults, as the consequences of defaulting on countries are already felt in Russia,

considers Steinbuk.

“For a country that is unable to pay its debts, it is a huge blow to its image, and investors will refrain from entering the country in the future. In the case of Russia, this has already happened before the default,” Steinbuk said. “So in my opinion, the role of defaults in the case of Russia has been greatly exaggerated lately. I don’t know how their situation can get worse there. She is already very, very bad.”

The Bank of Latvia also points out that the interest of European Union and US lenders and investors in Russia is reduced not only by the risk of losing money, but also by sanctions that restrict transactions, and the level of sanctions is increasing. For example, this week the European Union has agreed that companies in the Member States must not make new investments in the Russian energy sector.

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