Page 54 - RusRPTJul22

Including all these episodes, this is the third time Russia has defaulted on its international debt.
Finance Minister Anton Siluanov dismissed the situation on Thursday as a “farce.” He also said it makes little sense for creditors to seek a declaration of default through the courts because Russia hasn’t waived its sovereign immunity, and no foreign court would have jurisdiction.
“If we ultimately get to the point where diplomatic assets are claimed, then this is tantamount to severing diplomatic ties and entering into direct conflict,” he said. “And this would put us in a different world with completely different rules. We would have to react differently in this case -- and not through legal channels.”
Symbolic default
Analysts say that the default is largely symbolic and will have little impact on the Russian economy in the short-term in contrast to the 1998 default that sent the Russian economy into a tailspin that took years for it to recover. In 1998 the government ran out of money, whereas this time round the government is reporting its largest ever current account surplus after receiving over €100bn in oil export revenues since the start of the war with Ukraine in February.
“Russia’s government has now reportedly defaulted on its foreign-currency denominated debt for the first time since 1918, but this is a largely symbolic event that is unlikely to have an additional macroeconomic impact. Sanctions have already done the damage and locked Russia out of global capital markets,” says Liam Peach, an emerging market economist with Capital Economics in a note.
“A default is significant insofar as it shows the effectiveness of the Western sanctions regime against Russia, but is not a big deal for Russia’s economy,” Peach adds. “The cost of default for a sovereign is being locked out of global capital markets or the prospect of a prolonged period of high borrowing costs. Russia had been in default for more or less three months as far as bond investors were concerned.”
Sanctions have already prevented the government from accessing capital markets, where it typically borrows some $3bn a year on the Eurobond market and raises several tens of billions of dollar equivalent on the domestic OFZ market. Now US investors are prohibited from purchasing any Russian government debt and the government has halted all new issuance.
With the state currently running a budget surplus of RUB1.6 trillion in the first quarter the Ministry of Finance has no need of foreign investors, but with the
54 RUSSIA Country Report October 2020 www.intellinews.com