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Consequences of sanctions / Russia technically went bankrupt. However, this will not cause a big problem for the country – attitude.sk

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Russia technically went bankrupt. However, this will not cause a big problem for the country. Russia has not paid its debts on time, but the local finance minister considers the whole thing only a farce. Russia went bankrupt. On Sunday, the country had the last chance to pay interest on foreign bonds totaling one hundred million dollars, but the payment was not made. The actual maturity date elapsed a month ago, but now the tolerance period has also ended. Technically speaking, the debtor has therefore been unable to meet his obligations, and this state of insolvency is defined by economic terminology in one word: bankruptcy. The fact that Putin’s Russia will not escape bankruptcy has been talked about practically since the beginning of the war in Ukraine. The sanctions have essentially prevented the country from accessing the world banking system and foreign currencies, which significantly complicates the execution of financial transactions. Until now, Russia has managed to meet its obligations by various means, but now it has hit the sanctions wall in full. The problem is quite simple. Russia, like all countries, takes out loans on its markets to operate and then repays them with interest. In many cases, loans are provided by foreign investors, such as large foreign banks, pension funds or central banks of other countries. Contracts always specify the currency in which debts will be repaid, with dollars and euros being the most commonly used. However, as a result of the sanctions, Russia has no way of accessing these currencies and therefore has no way of repaying its obligations. Russian transactions are subject to sanctions and banks cannot process and pay them in other currencies. Until now, there was a hole in the sanctions set that allowed US creditors to accept Russian payments, but this hole has already been addressed by the US authorities. Russia has resolved the situation by unilaterally declaring that it will consider sending the funds as repayment of the commitment, and that it is no longer interested in the funds being blocked due to sanctions. Russia does not lack money Russian Finance Minister Anton Siluanov called the whole situation a farce. The country has no problem with the payment of liabilities per se, revenues from oil and gas exports bring billions to the state coffers every week. The problem is processing the payment. “Anyone who understands what’s going on here knows that this is by no means bankruptcy,” Siluanov said. There are several installments in a similar situation, but this has not yet expired. In total, Russia has about $ 20 billion in foreign debt. “It is fair to say: the sanctions did not allow us to make the payment, so it is not our fault?” Hassan Malik, an analyst at Loomis, Sayles & Company and an expert on Russia, asks Bloomberg. “The broader context is that these sanctions were in response to an attack on part of a sovereign entity,” he continues, “and I think history will look at it from this perspective,” he said. The fact that Russia has technically become insolvent will not cause the country any major problems in the short term. It has sufficient own resources to finance itself and is not dependent on the financial markets, to which it no longer actually has access as a result of sanctions. At the same time, experts do not expect investors who did not receive their money to take action and go to court. For the time being, they are expected to wait for the situation to develop. A stain that the economy will not get rid of Under normal circumstances, if a country goes bankrupt, several mechanisms will be triggered. The government will propose restructuring to the creditors and agree on the way forward. This was the case in 2005, when US creditors agreed with Argentina to gradually repay liabilities totaling $ 82 billion. The country went bankrupt in 2001 and experienced the worst economic crisis in its history. In the most extreme case, a country cannot simply repay its obligations and creditors can say goodbye to their money. However, this does not mean that the country will simply start over. Its position and reputation in the financial markets will deteriorate significantly and it will be difficult to obtain money for its operation and under very unfavorable conditions. Russia is currently self-sufficient thanks to oil and gas export earnings, so it does not need foreign markets to run. However, according to experts, this technical bankruptcy will leave a big stain on Russia’s reputation in the future when the situation with Ukraine and sanctions shifts. “This is something that will overshadow the economy and make it very difficult for us to recover when we get to this stage,” Chris Weafer, chief executive of Macro Advisory, tells the BBC.

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