Russia could go bankrupt in a matter of weeks. The country has to pay off interest and some loans, but it doesn’t have enough dollars for that.
Billions in dollar-denominated debt
On Wednesday, Russia had to pay an interest amount of 120 million dollars (109 million euros) to lenders of the country. Moscow says that the money has now been transferred, although it is still unclear whether that payment has been approved. That’s just not the end of the impending bankruptcy.
In the course of this month, Russia has to pay an additional $615 million in interest. At the beginning of April, the country has to pay off government bonds worth 2 billion dollars in full for the first time.
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The problem is that, due to the international sanctions following the war in Ukraine, Russia hardly has any more dollars and euros at its disposal.
‘No global crisis’
In total, the Russian central bank says it has about $630 billion in foreign money, more than enough to pay off government bonds and transfer interest rates. But hundreds of millions of those reserves in Western banks have been frozen. And the country is no longer allowed to exchange rubles for dollars.
Top woman of the International Monetary Fund, Kristalina Georgieva, thinks it is no longer unlikely that Russia will go bankrupt. “Russia has the money to pay off its debts, but can’t access it.” But they does not think that Russia’s financial problems will lead to a global crisis.
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If Russia does not pay the pending payments, it will first be given a 30-day postponement of payment. If the money has not yet been transferred, there are various ways in which the country can be declared bankrupt. For example, because a credit rating agency lowers their rating.
Russia in the corner
The American rating agency Fitch has already done something like this for a large number of Russian banks. They now have CC status. In other words: ‘some form of bankruptcy seems likely’.
Once there is bankruptcy, you as a country no longer have access to the capital market, says Durk Veenstra, stock market commentator at RTL Z. “You are no longer creditworthy. Is that a bad thing? Russia will not immediately collapse, after all, it still has reserves. , it can still sell supplies.”
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If Russia goes bankrupt, it will be bad for the rest of the world’s trust in the country, says Veenstra. “Russia is increasingly pushed into a corner as a result.”
The Netherlands cautious about investing
At the same time, he believes that the country has prepared itself for this situation. “We are still financing Putin, by buying oil and gas from Russia. Basically billions are coming in every day. Only if we boycott that will the country bleed out.”
Will the Dutch investor notice anything of a bankrupt Russia? Not so fast, Veenstra thinks. Of the $40 billion in government bonds that Russia has outstanding, about half are in the hands of foreign investors, according to Reuters. “But you never know exactly from whom,” says Veenstra.
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In addition, Dutch financial institutions have been very cautious about investing in Russia since the annexation of Crimea in 2014. Of all the money that banks had lent at the end of last year, only about 0.2 percent was to Russian customers, according to a report. data from De Nederlandsche Bank.
Distrust of Russia
The Russians themselves are the ones who will notice if Russia goes bankrupt. “Russia has a state-dominated economy,” says Hans van Koningsbrugge, professor of History and Politics of Russia at the University of Groningen.
“Because of a bankruptcy, everything that has to do with that state is cast in a bad light. As a foreign entrepreneur, am I still paid by a state-owned company? By the Russian government? That mistrust leaks through the entire chain, right down to the flower exporter in the Netherlands. who thinks twice before sending a load that way.”
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This has two consequences, says Van Koningsbrugge. “There will be (even) less for sale in the shops. And what is for sale will become much more expensive.” According to Van Koningsbrugge, it is obvious that inflation will rise further. “It has already risen considerably due to the faltering payment system and the hesitation of many parties to enter the Russian market at all.”
The Russians’ normal response to this would be to exchange rubles into euros, and quickly. “But 30 percent commission is already being charged for this. Russians withdraw further in times of crisis; to their immediate circle of friends, family and the dacha, a cottage in the countryside. There they grow potatoes and onions to get through the winter.”
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If Russia does not pay off government bonds and interest, Russian companies and investors could also be in trouble. For example, Russian investors who bought these bonds in dollars through their accounts abroad† or Russian banks that use the bonds as a capital buffer.
Insurance at $6 billion
Internationally, a bankruptcy of Russia can also have its repercussions. Large investment companies and asset managers such as Blackrock, Capital Group and Fidelity have already written off millions or billions on their investments in Russian government bonds, which are worth 35 to 65 percent less have become.
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