Putin dodges debt default
Vladimir Putin has raided Russia’s dollar reserves to pay creditors in a “last minute U-turn” that has “staved off the country’s first international default since the Bolshevik revolution”, says The Daily Telegraph. When the US froze Russia’s domestic reserves following its invasion of Ukraine, Russia refused to make payments on its $40bn in dollar debt (half of which is held by foreigners), offering roubles in payment instead – an effective default that would have trashed its reputation with investors. But with the 30-day grace period due to expire, Russia instead used dollar reserves out of reach of sanctions to make the payment. Some sort of default looks inevitable in the coming months, however, says Robin Wigglesworth in the Financial Times. The US under Joe Biden is “determined” to force Russia into one, which it could easily do simply by banning Russia from servicing its debts. Such a move could take place later this month when the sanctions regime tightens and US entities are prohibited from processing or even receiving any Russian money. Russia may soon default anyway – its perceived need to protect its reputation with investors seems “pretty silly” given that the country is now an international pariah. Meanwhile, the sanctions are hurting and Russia is “fast tumbling back into an epoch resembling the 1990s”, which was characterised by “wrenching depression, hyperinflation, black markets, bartering” and “racketeering”, says Jason Corcoran in The Sunday Times. In the short run the country faces a contraction of up to 20% of GDP, and experts estimate that inflation will peak at 24% this summer.