MOSCOW: Russia on Monday accused the West of trying to push Ukraine towards an “artificial default” with unprecedented sanctions, but vowed to repay its debt.
Russia will pay interest on its foreign debt later this week, and Moscow has warned it will pay interest in rubles if sanctions prevent it from using the issued currency.
“The freezing of foreign currency accounts of the Bank of Russia and of the Russian government can be regarded as the desire of a number of foreign countries to organise an artificial default that has no real economic grounds,” Finance Minister Anton Siluanov said in a statement.
Ratings agency Fitch last week downgraded Russia s sovereign debt rating deeper into junk territory, warning that the decision reflects the view that a default is “imminent”.
But Siluanov denied that Russia “cannot fulfil the obligations” of its government debt.
He said Russia was “ready to pay in rubles at the rate of the Bank of Russia on the day of the payment”.
While foreign-currency government bonds issued by Russia since 2018 did include reserves repayable in rubles, Wednesday’s total of $117 million in interest paid on two dollar-denominated bonds did not.
Russia went into default in 1998 and faced fiscal austerity as oil and other commodity prices fell, meaning it could no longer prop up the ruble and pay off debts swelled by the first war. Chechnya.
Plummeting currency values, soaring inflation and bank failures have caused widespread suffering and are seen as helping President Vladimir Putin to power.
Putin has been working to improve Russia’s finances by keeping debt low and using windfall oil export earnings to build up $600 billion in foreign reserves.
But the sanctions imposed on Moscow over the invasion of Ukraine targeted Russia’s $300 billion in foreign currency reserves held abroad.
Without access to the funds to make the payments, Russia could find itself forced into default, although the status of the payments on Wednesday remained uncertain.
According to JPMorgan analysts, the U.S. sanctions “do not directly limit” Russia’s ability to repay its debt.
The sanctions imposed by Washington prohibit most financial transactions, though there are some exceptions, including payments for energy.
According to the US Treasury, interest payments to American entities “are permissible through May 25,” on bonds issued by Russia s Central Bank, Finance Ministry or National Wealth Fund before March 1.
Once that temporary authorization expires, “US persons would require a specific license to continue to receive such payments.”
The ratings agency Moody s warned last week that investors could face losses of 35 to 65 percent, as “Russia s ability and willingness to honour debt obligations has steadily deteriorated.”