Repayment Deadline Approaching for External Debt Principal and Interest
Risk of Default Considered if Paid in Rubles
[Asia Economy Reporter Cha Min-young] Russia has repeatedly stated its intention to fulfill its debt repayment obligations in its national currency, the ruble, following the U.S. decision not to extend the grace period allowing Russia to repay its foreign debt principal and interest.
According to TASS news agency, Vyacheslav Volodin, Chairman of the State Duma, said on the 25th (local time) via his Telegram channel, "We have the necessary funds for (principal and interest repayment) and will make the repayment in rubles," adding, "This (U.S. measure) is a deliberate choice by the United States, and they have prohibited dollar payments themselves."
Chairman Volodin stated, "Currently, the value of the ruble has risen significantly, creating a favorable market environment for us," and argued, "The U.S. and its allied countries that supported the U.S. decision should get accustomed to the ruble."
The U.S. Treasury Department announced the previous day that it would not extend the grace period that allowed Russia to repay principal and interest on government bonds to U.S. creditors. The existing grace period ended at midnight on the 25th. Since Russia launched its "special military operation" against Ukraine at the end of February, the U.S. has imposed a comprehensive ban on transactions with the Russian Ministry of Finance, the Central Bank, major banks, and the sovereign wealth fund. However, a grace period was granted until the 25th of this month to allow U.S. creditors to receive principal, interest, or dividend payments from Russia.
In this regard, Russian Finance Minister Anton Siluanov also stated on the 18th, "Russia will not declare a default," and added, "If the U.S. forcibly blocks principal and interest repayments, Russia will repay in its national currency, the ruble."
Russia must fulfill its foreign debt obligations maturing in 2026 and 2036 on the 27th. The euro-denominated 2036 bonds include an additional clause allowing payment in rubles. Subsequently, interest payments on government bonds maturing in 2028 are due on the 24th of next month.
However, there remains a risk as principal and interest on foreign debt denominated in dollars or euros are generally considered in default if repaid in another currency. In early April this year, Russia paid principal and interest on two foreign debts maturing in 2022 and 2042 in rubles but received a warning from the international credit rating agency Moody’s. This was due to the assessment that it violated contract terms that stipulated payment must be made in dollars.
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