Russia is close to defaulting on its debts abroad, according to the rating agency Russia

Russia’s shift to ruble debt payments has brought the country on heavy sanctions to the brink of default, according to a leading credit rating agency.

Putting additional pressure on Vladimir Putin’s obsessed government, Moody’s said that without a return before May 4 to making payments in dollars, as agreed in terms of Russian loans, Moscow may be in default, allowing creditors to demand insurance payments. and tarnish the country’s reputation as a reliable counterparty.

Moody’s warning of impending bankruptcy is expected to be met with an angry reaction from the Putin administration, which has denied that its loan rules prevent Russia from paying interest in rubles.

In response to a similar statement last week by Standard & Poor’s that ruble payments threaten Russia’s status as a borrower, the Kremlin said the West had already defaulted by freezing its reserves and wanted a new system to replace Britain’s Woods’ financial architecture, created by Western powers in 1944.

Sanctions against Russia following its invasion of Ukraine have prevented the Russian central bank from gaining access to much of the foreign currency it has accumulated in recent years.

Earlier this week, Anton Siluanov told the pro-Kremlin newspaper Izvestia that Russia had taken “all necessary steps” to pay its international creditors.

Russia’s finance minister has suggested he can go to court to dispute that the terms of his payment have been met. “Of course we will sue because we have taken all the necessary steps to ensure that investors receive their payments,” he said.

If Moscow is declared in default, it will mean Russia’s first failure to pay interest payments on foreign bonds since the 1998 currency crisis, when investor confidence collapsed and Boris Yeltsin’s government was unable to sell new bonds to international banks. markets to finance the old. .

In the last week, Russia has had to meet two deadlines for paying off bonds previously sold to foreign investors. The total interest rate was nearly $ 650 million, and Russia had to make payments in dollars under the terms of the bond agreements.

Understandably, one of Russia’s major creditors has asked the Credit Derivatives Committee, a division of a commercial body made up of private sector creditors, to assess whether a “potential default” has arisen on Russian bonds.

Russia still has 18 days from the 30-day grace period before the committee can rule that a “credit event” has occurred – a default.

Moody’s said: “Russia has reportedly made payments on two bonds maturing in 2022 and 2042 in rubles rather than US dollars, which is a change in payment terms from the original bond agreements and can therefore be considered for default according to Moody’s definition, if not cured by May 4, which is the end of the grace period.

“The bond agreements do not contain a clause for repayment in a currency other than dollars,” he added.

In 1998, Russia forced creditors to wait 90 days before paying interest on the debt, causing technical default. Desperate to support imports, but without foreign currency to pay for them, the Kremlin has resorted to a barter system with foreign companies and governments, which some analysts say is currently being used as a way to circumvent sanctions rules.

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The country has been saved by rising oil prices, which generate billions of dollars in foreign currency. By the end of 1998, the economy had begun to recover and the government was able to repay the debt again.

Foreign creditors are concerned that the freezing of Russia’s assets in dollars and euros under the current sanctions regime means that such a recovery and return to interest payments in foreign currency will this time be outside the Kremlin.

If Russia misses the debt deadlines, creditors who have secured their loans through credit default swaps will be able to seek insurance payments.

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