Russia has defaulted on its foreign debt for the first time in more than a century, the White House said on Monday. Western sanctions over Russian President Vladimir Putin’s war in Ukraine have blocked payment options for the country to reimburse overseas investors. Russia missed its end-of-Sunday deadline to make interest payments of around $100million (£81.2million). After the payments were not made — initially on May 27 — a 30-day grace period was allowed, but that has since long passed.
In this case Russia’s debt is in the form of two Eurobonds, debt instruments that allow it to raise money from international lenders, which it was due to pay back.
Last week, Russian Finance Minister Anton Siluanov branded the nation’s looming default a “farce.”
Moscow claims it is unable to pay its debt, and in May it tried to pay some of its dollar debts in Rubles, despite bonds not accepting Russia’s domestic currency.
Sanctions over Ukraine have crippled the Russian economy, sending inflation sky-high, with factories across the country now struggling to keep up with production demands.
But the sanctions have also effectively cut Russia out of the global financial system, meaning it has been unable to service its debts.
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But what does it mean? And has it happened before? Express.co.uk takes a look at the history of Russian debt and what might come next.
The last time Russia defaulted on its foreign debt was during the Bolshevik Revolution of 1917.
This period of upheaval saw the Government overthrown in a coup, the collapse of the Russian Empire, and the formation of the Soviet Union.
Russia also defaulted on its domestic debt in 1998 as the country’s economy was left in ruins following the collapse of the Soviet Union.
That default on domestic rouble bonds meant Moscow had to be bailed out with international aid, including from the US.
Investors can formally declare default if over a quarter of bondholders report that they were not paid.
If this happens, it would mean that all of Russia’s other overseas bonds would also default, and bondholders could then pursue the matter through the courts.
In normal times, this would mean investors could settle, which could result in them getting new, cheaper bonds with some form of compensation.
However, the volatile situation has led analysts to warn investors to try and wait out the situation rather than trying to negotiate with Russia.
Amid the sanctions over Putin’s war, many international brands such as McDonald’s have pulled out from the country.
Although the economy is on its knees, Russia’s default is unlikely to make the situation worse for now, experts say, but it is expected to be a problem in the long-term.
Chris Weafer, Russian economy analyst at Macro-Advisory, told CBS: “This is where the legacy of default will be a problem.
“It’s a bit like if an individual or if a company gets a bad credit score, it takes years to get over that.”