Russia copes with the risk of ‘technical default’
A pedestrian walks past a currency exchange studio in Moscow. From May 25, the United States blocked channels that allowed the Kremlin to pay debts to US bondholders – Photo: EPA-EFE
Thus, the Office of Foreign Assets Control (OFAC, under the US Department of Finance) has not renewed the license to exempt the Central Bank from sanctions since May 25.
This license, issued by OFAC on March 2, allows Moscow to repay foreign exchange loans from frozen reserves through US and international banks and expired on May 25.
If the loans come due and cannot be repaid, Russia has only 30 days before being declared insolvent. Next Russian payments on June 23 and 24.
What is “technical default”?
Adam Solowsky of the global law firm Reed Smith commented on CNBC (USA): The question is whether Russia will recognize its default, because Moscow insists that if it is restricted to paying in foreign currencies, it still has repayable in rubles.
In fact, Russian Finance Minister Anton Siluanov has also stated: “Russia will not go bankrupt because of public debt. If the license is not renewed and the Western infrastructure operating payment operations is blocked, Russia will will pay in rubles. We have money.”
According to Mr. A.Siluanov, Russia’s foreign debt currently accounts for 14% of GDP – an amount that Mr. Siluanov considers quite low compared to many countries in the world (with some countries up to 100%, even 300% of GDP).
Financial experts call this development a “technical default”.
Professor Yuri Yudenkov of the banking and finance department at RANEPA explains: “Previously, we paid not in rubles but in USD that was held in other sources and not blocked by the US. Now we want to continue to pay in rubles but the US doesn’t allow it, they want USD but USD is blocked.
So what’s coming is not a default in the most direct sense of the word. This is a technical default.”
So far, it seems that Moscow is not too worried about the “technical default”. Agathe Demarais, global forecasting director at the UK’s Economist Intelligence Unit (EIU), said that because Russia’s debt was low and even on the verge of falling just before the war in Ukraine, it “could be possible” does not pose a big problem for Russia.”
Earlier, on May 18, referring to the possibility of a “technical default” of Russia, US Treasury Secretary Janet Yellen also admitted that she did not think this default would significantly change Russia’s situation. because it has also been cut off from global capital markets.
Similarly, according to Boris Vasiliev, a research team leader at the Institute of the United States and Canada, the issue of recognizing bankruptcy is only important from an international investment point of view: if a country goes bust and defaults on public debt, then the health investment attractiveness of that country is zero.
But in the situation that Russia has received more than 10,000 sanctions and economic and financial relations with the West have fractured, this technical default does not need to be “tragic”.
“It’s just that Western creditors won’t get their money,” added Oleg Barabanov, professor of international relations at the National Economic University.
Dangerous precedent
This new move by Washington is certainly to put more pressure on Moscow to influence the war in Ukraine.
Timothy Ash, senior strategist for emerging market sovereignty at BlueBay Asset Management (UK), said that “the right move by OFAC will put Russia in default for many years to come” and “Russia will only be able to get out of default when OFAC allows it.”
However, political commentator – Russian historian Nikolai Starikov said that Washington’s move was just “a show off” and Washington needed to exaggerate information to demonstrate its strength to the world and to Ukraine: only two months of sanctions made Russia default!
Vladimir Vasiliev noted that causing this “technical default” could set a dangerous precedent because today many countries have large public debt, the US itself has surpassed the 30 trillion USD mark. Vasiliev warned that “many developed countries may find themselves in this situation”.
Previously, investors asked the US Government to extend the validity of the license. According to Bloomberg News, the Institute of Investment Companies (which manages about $31 trillion in the United States) applied for a three-month extension of its license. They pointed out that failure to renew would harm American investors, not the Russian government.
10.128
Russia’s special military operation in Ukraine from February 24 has sparked countless US and Western sanctions decisions against Moscow.
According to the preliminary summary of the Chairman of the Russian Duma (Lower House) V.Volodi, as of May 8, Russia has received 10,128 sanctions from the US and the West, more than any number of sanctions that any other country have received in the entire history of the existence of these embargoes.
at Blogtuan.info – Source: tuoitre.vn – Read the original article here
