The unpredictable risks of a new Russian debt crisis


Financial markets rallied Friday after Russian officials made vital transfers to foreign investors, sidestepping what would have been Moscow’s first sovereign debt default in nearly two and half decades. But despite the collective sigh of relief on the floors of global stock exchanges, the risk of a new Russian debt crisis still looms large.

The problem with Russian debt today is far different than in 1998, when financial turmoil and a cash crunch forced Moscow to renege on payments to domestic bondholders in a financial event that rippled across the globe. This time, Russia has plenty of cash — but a big chunk of its reserves has been frozen by U.S., European and Japanese officials as punishment for its invasion of Ukraine.

To blunt the negative impact on the global financial system, the U.S. Treasury has said it will allow Moscow to transfer frozen funds to cover its foreign bond payments until May 25. But think of that as only a limited insurance policy — one could run out at any minute.

That’s partly because Russian President Vladimir Putin has suggested foreign creditors in “hostile” nations may be paid in undesirable rubles instead of dollars or euros.

Importantly, the Russians didn’t move in that direction last week. But Moscow has nearly $2.86 billion in interest and bond payments due by April 4, according to the Institute of International Finance (IIF), an industry association. If Moscow does try to pay in the lowly ruble, such a move will be tantamount to a sovereign default, rating agencies have said. It would be Russia’s first on its foreign-held debt since the Bolsheviks halted payments in 1918.


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