For the time being, investors can breathe a sigh of relief because the Russian government has paid interest on foreign maturing debts worth US$ 117 million.
But Russia still faces even greater debt. This country still bears debts of up to US $ 2.2 billion and will mature on April 4, 2022.
“The last payment was small, but Russia should start writing billion-dollar checks, that's a different calculation. I don't think it's realistic that Russia makes $2.2 billion," said former Elliott Management portfolio manager Jay Newman.
Last week's bond payments panicked investors because it was unclear whether Russia's central bank could use frozen reserves in US dollars as payments and whether US banks would work with the country on payment transactions.
There is also a dispute over whether Russia can pay debts in its own currency. Russia's Ministry of Finance insists that the country can pay in rubles-dollars (RUB USD) of +6.39% but those who know the contract should instead be paid in dollars.
For some smaller installment payments, Russians are allowed to pay in rubles. But the previous payment of US$117 million and the future payment of US$2.2 billion required Russia to pay in US dollars.
But debt experts are taking a bleak view of what comes next. They are pessimistic about Russia's ability and willingness to meet its debt obligations, especially as Russia faces nearly $4.8 billion in debt payments this year. The US Treasury Department clarified that Russia could use the frozen funds to make debt payments until May 25, 2022.
After that, the country may need to raise money from other sources such as borrowing cash or selling oil to countries like China or India. "If they make payments with funds they don't have access to, that's basically a funny thing," Newman said.
Newman said Russia would spend 15 years recovering its $2.4 billion debt from Argentina after it defaulted. Even if Russia could make another payment, some experts fear it will simply refuse.
Newman argues tough sanctions imposed by the US could backfire and remove Russia's ability to access global markets and trade, eliminating the country's motivation to continue paying debts.
“If Russia is cut off from the rest of the world, you have to doubt they will continue to pay,” Newman said.
For Newman, it was unusual for a country under escalating and persistent economic sanctions to keep paying – these sanctions had unintended consequences.
Newman is not alone, believing that Russia will face a multibillion dollar default by April 2022. “I expect a default on Russia's debt because it is not only an economic issue, it is a political one,” said Eurasia Group political risk consultant Robert Kahn.
Meanwhile Russia owes US banks nearly $15 billion. Economists do not expect significant debt defaults to weigh on global markets in the long term.
According to the International Monetary Fund (IMF), Russia's isolation from the rest of the world is considered systemically irrelevant. However, the conflict and its aftermath have taken a toll on the global economy.
The Organization for Economic Cooperation and Development estimates the conflict will reduce global growth by a percentage point and increase inflation by more than two percentage points.
Other economists say the war has increased the odds of a US recession from 10% to 35% over the next year.
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