Russia Defaults on Foreign Debt for First Time Since 1918
bnnbloomberg.ca
bnnbloomberg.ca
During Russia’s financial crisis and ruble collapse of 1998, President Boris Yeltsin’s government defaulted on $40 billion of its local debt.
The last time Russia fell into default vis-a-vis its foreign creditors was more than a century ago, when the Bolsheviks under Vladimir Lenin repudiated the nation’s staggering Czarist-era debt load in 1918.Unilaterally declaring a moratorium may be considered a default event, but ultimately it depends on what exact definition you're using. Wikipedia doesn't say how the rating agencies treated that event, their collective view is usually seen as authoritative in such situations. If you have a copy of This time is different on sovereign debt crises by Harvard economists Carmen Reinhart and Kenneth Rogoff lying around, you could check how they classified this event (my hinge is that they'd count it as one).
I agree, it's a strange to borderline misleading headline, especially if the article fails to discuss the technicalities of this moratorium.
PS: I'd argue that 1998 was in some sense "more" of a default than this, because defaults are usually related to the borrower being unwilling or unable to pay, which was the case in 1998. Forcing a solvent and willing party into missing a payment by closing their bank accounts is really a bit of a different story.
Will that distinction make a difference to international investors? I think the West has achieved their objective of making Russia unattractive for investment.
China and India can continue to invest because confidence in Russia's continued willingness to service their debt has not eroded. They'll just use something other than the US dollars or the Euro. That would even be nicer for them because its an opportunity for China and India to expand the international usage of their currently very much local currency.
It does make a difference because the questions that the investors have to deal with now are completely different to a "normal" default. Normally, there simply is no money, or you have to find a court where you can sue the foreign government.
Now, there is money, and they could actually get paid today (maybe even in dollars) if they are happy to open a Russian bank account (I remember Russia suggesting something along those lines, basically the reverse of what they used to force Europeans to pay in Rubles for their gas). But that raises other questions: would that be breaching any sanctions? How are they going to get the money out? At what rates? The answers will also depend on their jurisdiction, whether they do any business with the US etc (a purely Chinese investor might actually be fine now).
So in that sense it is quite different, but the result is similar (arguably even worse) - Russia is pretty much cut off from international (especially Western) capital markets, that's true.
Why is that?
Shouldn't the value of a currency reflect two things, the strength of a nation's economy and the soundness of the currency?
The strength of the Russian economy surely went down, right?
So it can only be due to the soundness. The market seems to expect Russia will not expand the Ruble supply more than the USA will expand the Dollar supply?
Additional supply -> Lower price.
No, because the people buying the Rubles aren't buying them on the open market. The people buying the Rubles are the people owed USD that are buying them for the rate the Russian Central Bank dictates with no choice in the matter.
Plus, it provides a price floor. If I owe you $1,000,000 USD, but I can pay you 50,000,000 Rubles instead, I'm incentivized to buy Rubles up until it reaches 50 Rubles : 1 USD.
> Additional supply -> Lower price.
The supply isn't changing at all. The demand, whether natural or forced, is what's exploding.
> Russia is the world's largest exporter of gas and the second-largest exporter of oil. Its primary customer? The European Union, which has been buying billions of dollars worth of Russian energy per week while simultaneously trying to punish it with sanctions. That's put the EU in an awkward spot – it has now sent exponentially more money to Russia in oil, gas and coal purchases than it has sent Ukraine in aid, which has helped fill the Kremlin's war chest. And with Brent crude prices 60% higher than they were this time last year, even though many Western countries have curbed their Russian oil buying, Moscow is still making a record profit.
It’s more complicated than those blurbs though. Also while the ruble may be artificially strong it doesn’t mean everything is going great in Russia, far from it.
https://www.cnbc.com/amp/2022/06/23/russias-ruble-is-at-stro...
Not sure about this, it's not about will, it's about not being thrown in a sanction package youself.
They both rely on oil and gas so aren't willing to negotiate on that, but they are dependent on the west for trade so will play ball.
True, but this works in reverse as well. Where does the US/Europe get their stuff from?
Obviously western society won't collapse due to the lack of Chinese merchandise, but it will have a huge effect.
If anything, the sanctions that were imposed on Russia only served to illustrate the above, and may serve as incentive to other dictatorial hopefuls.
Again, this comes at a cost, which while prohibitive to some is not an issue for Russia, sitting on a pile of cash as they are.
- Russia is the world's largest exporter of gas and oil.
- Gas and oil prices go up.
- Russias economy is stronger
The amount of currency depends both on the stuff people buy from you (money flowing down from the mountain) and on the stuff you buy from people (money flowing through the dam).
> Critical supply chains in Russia have been shattered. Hundreds of Western companies have pulled out of the country. Export sanctions have strangled Russia's access to essential technology and components necessary for entire industrial sectors. Tank factories have shut down. Missile manufacturers are scrambling for critical components and parts. An economy projected to grow in 2022 is now on a path to contract by as much as 15%.
> In rare moments of candor, some Russian officials have provided glimpses into the economic damage taking hold. ¶ Russian Minister of Transport Vitaly Savelyev said in May that the sanctions "have practically broken all the logistics in our country." ¶ Russia is by no means the first country that's been sanctioned by the US. But compared with North Korea, Venezuela or Iran, it is far more integrated into the global economy, which has made this latest round of sanctions all the more destructive. ¶ "I think that's what people are missing -- the fact that Russia has to rip apart 30 years of integration into the global economy," said Elina Ribakova, the deputy chief economist at the Institute of International Finance.
Her problem now is that it starts to be too strong.
My comment simplified the situation though.
So from a basic perspective there's just more of that going on in one direction, less happening in the other direction, so in the end the value goes up. Though it might be pretty theoretical! If you were given a bunch of rubles today, as a Russian national, how easily would you be able to actually convert those to dollars?
That being said, tight currency controls at borders for a large economy does let you control the value of your currency like this, and the downsides of relatively heavy currency controls feel really theoretical if you are not trying to hide a bunch of money (from an economic perspective at least).
Russia is exporting oil and importing most of everything else. We made it very difficult for them to import that everything else especially in industrial quantities.
Whatever was produced in Russia, like tanks, will have issues with production lines.
Cutting of gas and oil imports will hopefully happen in few years perspective. Russia is already helpfully limiting supply of gas. I would want to see them cut it off fully as they did to Poland, Finland or Bulgaria.
Can the average russian exchange their roubles for gold? Can anyone else legally exchange their roubles for gold?
Edit: sorry, that was actually Nikolai Patrushev, who is as relevant as one can be without being Putin himself. Source: https://www.rbc.ru/economics/29/04/2022/626be2919a7947fc6ea2...
I don't think situation like this ever happened before.
Actually if I think about it it's even worse. It's a person who goes to bank to pay off his debts but bank refuses to take their money and forecloses the house as well as confiscates property.
I know, I know. The Russian government is doing atrocious things but this "forced default" could actually have negative consequences. Who would trust this bank in the future?
But all of the gold buyers don't want to deal with you because you're a criminal.
(Also, if you don’t have access to the agreed currency because you invaded another country and are committing war atrocities, and no one will do business with you, then sucks to be you.)
the trust would have already been eroded in some parts from financial sanctions of this magnitude.
This is why using financial system as a weapon of politics (or war) is fraught with danger. Sure, for this situation, it might be the best option short of a shooting war, but countries that currently rely on the US financial system would be smart to think of strategies to diversify themselves. This diversification will take away financial prowess from the US, and remove some of that wealth associated with such prowess.
Yeah, this was exactly my point. Warmonger or not, everyone likes to store their assets in dollars. After this - they'd think twice.
But that diversification was probably going to eventually happen anyway, so it could be foolish to refrain too long from using the "weapon" of financial system sanctions, since eventually they would become useless even if it's never used.
IMHO, the era of globalization is over, so every power is going to pull back (at least a little) and setup defenses where they're dependent on adversaries. For countries like Russia and China, that means creating alternatives to the Western financial system; for the West that means pulling manufacturing back from China. This may be an area where the West is at a disadvantage, due to democracy and stronger ideological commitments to free markets. An Authoritarian can make a decision to protect a longer term goal and tell her population to suck up the short-term consequences (e.g. higher prices), but a Democrat may just get kicked out of power in favor of someone who will ignore the long-term risks to avoid the short-term costs.
> This is equivalent of a person going to bank to pay off their debt and bank refusing to take money so said person must declare bankrupcy.
The bank wanted to be payed in BTC but you offered LUNA instead. Even if you had the Dolar amount in LUNA token, for your debt, who would swap theese for BTC?
Yes I agree I don’t think anyone has ever before tried to repay a loan with monopoly money.
So, it's more like you go to the bank on the 25th to make your payment due on the 30th and then the bank just doesn't pay the bill, forecloses the house and confiscates the property-- all the while putting out press releases about how you defaulted.
EDIT:
I just looked it up, the bank in question is Euroclear and isn't something specifically setup for this. It sounds like Russia always paid in Rubles and they paid that to Euroclear who then distributed the payments in whatever currency the bonds and such were held in, but due to sanctions they're no longer doing that. So Russia is paying the bill, the middle man just isn't distributing it due to the sanctions. My understanding of them always having paid in rubles might be incorrect, but it sounds like managing those nuances is what the purpose of the bank is.
Yeah, I'm no fan of the Russian government or what it's doing, but this is always going to be "Russia defaults* on Foreign Debt" (with an asterisk). There are too many external factors that were deliberately trying to force this outcome through unusual means for it to be an unqualified default.
Power doesn't come only in the form of tanks.
By this same logic then we can't let the US get away with invading the rest of the world just because they can afford their debts.
How do you know someone eats up Russian propaganda?
Easy, when you tell them "Russia did a bad thing", their response is "the USA also did bad things".
Easy, when you tell them “USA did a bad thing”, their response is: we’re the good guys, we’re exceptional, so we can do whatever we want to do, but you must do what we told you.
"Rules for thee but not for me". Consider that they might just be trying to understand your code of values and whether you're capable of walking the walk according to the same moral principle that you're so eagerly preaching them with.
Has justice been done to the past victims of the US aggression? Has punishment reached their perpetrators?
It took many years of hard work of hundres of millions of people (who don't want war) to create foreign reserves. I'm sure Chinese goverment (and other governments with huge foreign reserves) took notice, and plan to dump their positions as quietly as they can.
Examples of stealing:
- https://www.bbc.com/news/61790625
- https://www.businessinsider.com/russian-troops-locked-out-of...
- https://www.themoscowtimes.com/2022/05/26/russian-soldiers-s...
Freezing/confiscating assets have been done under the judicial system. I understand that within a barbarian hoard there is also a judicial system or a system of values which state that anything goes during a war, but if that's the case, then why doesn't that apply to the 'west'? Putler said this was a war with the 'west', right?
Before central banks the scam was the same with "notes" (around 1300) but was the same. And people keeps accepting it.
Beside that paying rubles because other central banks do not exchange dollars or euros is not "default" is just the TRAGICOMIC example of the aforementioned scam, that have no practical effect of a sovereign and armed country, but have effect on individual citizens not in that very country but in any country where the same scam is applied.
Long story short: we are in a cyclic neoliberalism crisis, where people all over the world mass-protest, strikes are more and more bigger and spread etc, witch happen to be the time neoliberals élite need a war to steal someone else resources and justify with the war any sufferance in between. Of course Russian or China government are not that different, but being not in Russia nor in China it's not my interest, it the interest of their people revolting or keep going. My interest is ANNIHILATING actual oppressive western ruling class in my own country (EU) before they annihilate me. For that a mass general and peaceful strike SUFFICE. If just anyone stock a bit of food, water and stop working for a month anything breaks and oppressors must made an U turn and surrender not to foreign power but to their own people. That's how Democracy works.
Since that's unlikely, most people are obeisant subjects drinking propaganda at a very high rate, my point is that I doubt we can have a Democracy for the next 10-20 years at least, and in that very case I question my own values to other people that allow such obscenity oppression to exists. Or I question myself if a new feudal society it's not "natural" to a certain extent, since many are unable to be Citizen. Of course, a feudal society means a neo-bourgeois society, not ones with very few rulers like WTO, WEF, WB, IMF, WHO etc as background dictators managing proxy-puppet states as they wish, the quantity of people who happen to be Citizen is not that little.
From previous comments I'm guessing that you're from France, and I cannot comprehend how you got that idea. It's ministry is corrupt as hell and every so often another scandal gets reported on, without any consequences to the politicians in question, so it's not like it doesn't have significant issues... But that doesn't make it into an oppressive regime.
Where exactly do you think you're getting oppressed? Maybe with the millions of stimulus french farmers get each year? Or with the suggestions for the regional governments? The sovreignity remains in the hand of each member state.
Yes. I think so because EU economy is ruled by some private crooks, the ECB, witch is formed by member states central banks, who are equally private. They equally loan money fully knowing that's mathematically impossible to pay interests and economically a nonsense and a scam since money are not a value, a substrate of anything but a unit of measure of nearly anything. A scam that's very old and well known, you can read for USA well described here: https://www.heritage-history.com/index.php?c=read&author=car...
Such private banksters are also those who steer the EU commission and all decisions basing/justifying most of them out of McKinsey made scenarios. No public consultation happen. No one vote for ALL EU policies.
France is no different: last year the still actual President have got a refuse from the Parliament for covid pass a day. He phone those who vote for to be ready in the night, he send the regular message to re-vote the very same proposal a midnight for 1h30 of the night, obviously almost only those pre-alerted were been there to vote and the no became yes. In Democracy this is a clear coup but no one have arrested him and his co-conspirators. Almost no one protest PRETENDING his arrest.
Long story short: actual France is a formal, not substantial Democracy, in reality a neoliberal dictatorship, the very same who rule others EU countries and USA. The sons of those liberals who have created nazifascism in the past to fight them when they grow too much, in the same way they have create ISIS to destroy their previously created dictatorships when those dictators became too independent, the very same who have created the Ukraine wars, because yes Putin act formally, after 10+ years of nazi-UK-USA ops, formally published just recently by the NYT [1], formally published by RAND [2], formally declared by the EU [3] and so on.
BTW dictatorships does not hold power if they do nothing for their subject, they have to keep them obeisant in some ways, the stick does the job, but the carrot is also need.
[1] https://www.nytimes.com/2022/06/25/us/politics/commandos-rus...
[2] https://www.rand.org/pubs/research_briefs/RB10014.html and https://www.rand.org/content/dam/rand/pubs/research_briefs/R...
They're corrupt and love to enrich themselves on taxpayers money, yes. That doesn't make it an oppressive regime.
If you call the EU ministry oppressive then the word loses its meaning, because they're a paper tiger/have no teeth.
The worst they do is inhumane treatment of political refugees around Greece - which is abhorrent but doesn't fall under the definition of oppressive because these people aren't citizen/don't live here.
What's wrong in this consideration?
I agree that the nazi-alike treatments of migrants is not per se domestic oppression, they came from other countries so formally it's not an act against domestic citizens, BUT for instance privatization of the energy sector who push price up to the starts and made a mess we can barely have an operational service now is a crime against their own citizens. Imposing sanctions, formally, against a third party with the result of damaging domestic economy, for instance keeping buying Russian oil but instead of doing so directly a X price per barrel doing the same with the India intermediation or from the USA a X+50% per barrel is a crime and the list is long.
Doing their best to circumvent Constitutional protection of Democracy is a coup and so on.
They are oppressive like China? Not FOR NOW, simply because for now they can't, but they dream and want so and they working toward this direction.
That our societies struggle with greed to the detriment of the working class isn't controversial in my opinion ... Nor should it be blamed on the EU, as our sovreign governments, employers and at this point basically everyone is just as bad.
> Enrich themselves, as private citizens/company is not a crime nor a bad thing per se
I disagree there btw, it's inherently destructive to the society. But it's a societal issue, not a legislative one.
We need to redistribute richness via taxes to ensure a limited difference between the poorest and the richest, to avoid tearing the society apart, but still allow some who for instance produce more, innovate etc to get something more than one who do nothing.
In that sense getting rich by heritage and personal work is not negative, taxes ensure avoiding a too asymmetric society and that's all. The issue arise when money is not a public unit of measure of a substrate (raw materials, work, know how etc) but a value per se, substrate of anything, administered by a set of private crooks to steer the society. Witch means the issue arise when taxes are governments income NOT a mean to redistribute richness.
EU government do not represent EU people, so they are not Democracy, they have betrayed their people, Constitutions and Republics. So they are oppressive. Of course there are some more oppressive than others. But since we do not have a better terms (at least I do not know any in my limited English) I use that. I can say "soft power oppressors" vs "hard power ones". I can add mild oppressors vs truce one but still unable to find a better terms to describe them, if you know one I'm curious...
And blaming the EU ministry in particular is also quiet misguided, as the local governments do the same and fuck you over much more effectively as they're actually able to significantly impact your life.
And that's an important part: I think we can't have Democracy because we miss the Demos. Actually just around 10-15% of total population can be labeled Demos, the rest can only be labeled "subject", mentally. Given that a cameback to classic aristocratic society is a bit automatic, the modern version for Russia is named "oligarchy" (as aristò happen also to be few-ish and not necessary "the best"), the west prefer "capitalism" and unfortunately the departure of such new model is not nice for a significant slice of the said 10-15% since a very small cancer do not want to divide power with anyone else counting on tech and finance to been able to rule alone.
In that sense I still fail to see something else than "oppressive". AT least in Swiss they vote every two month to approve or reject laws, here protesters have asked for RIC (Citizens demanded referendums) but such request never arrive to the be law and not enough accept to impose such change via a general strike for instance.
That means again, most agree with such governance, and since such governance do not respect the People... How can I call it?
The point was that none of the factors you're mentioning are oppressive.
You can definitely make a good argument that they're undemocratic and that the people in power do their best to sabotage democracies. But that's not what oppressive means. You're just simply misusing the word. I am not aware of any one word to describe what they're doing, but I'm not a native speaker nor particularly fluent in politics. Could be there is a word for it which I just don't know, but often meaning can't be distilled to a single term and it's fine to use sentences to properly convey the issues at hand.
The playground analogy here is like you gave your money to some kid, "Rusty" in the playground to buy a sandwich yesterday. Rusty buys a sandwich, and next day they come to pay you back. They in fact do pay you back by leaving some money on your desk. But then, before you've had a chance to put them in your pocket, some kid "Amanda" who fancies herself the class president (even though no-one voted for her), grabs the money from the desk and says "man, it sucks that Rusty didn't just pay you; what an ass, eh? We'll just put this in the 'class fund' for now". Meanwhile Rusty is like, hey I paid my debt the minute I put your money on your desk, so, sucks to be you I guess.
Yes, I get the part where Rusty was really mean to Ursula this morning, and that Amanda (who had been pretending to be Ursula's friend to get back at Rusty for a while now, and was what prompted Rusty's tantrum in the first place) made this edict about anyone giving Rusty sandwich money should not expect to get it back. And I get the part that it doesn't really matter if I gave the money yesterday, before all this started. Tough luck, I'm involved now.
I also get the part where I'd be reluctant to buy Rusty another sandwich if it meant Amanda would keep grabbing my money (though, in all honesty, I wouldn't trust my money with Amanda now either, given the whole "class fund" shenanigans), but ... seriously, that can't be the whole story, can it? Is the main story here really that we are all schoolchildren in dire need of a headmaster?
For me, the sanctions aren't about stopping the current war, but about stopping future wars.
In your analogy...
Rusty doesn't know how to make a baseball bat. We supplied rusty with baseball bats because we thought he would use it to play baseball games. Instead he used it to threaten his class mates. We took that supply of baseball bats away from him because we can and don't want him to threaten Suzy like he did with Ursula. It doesn't matter to me what Rusty wants to trade to get those bats.
I don't supply bats or anything that can be traded to bats to Rusty in order to protect Suzy and I'll give Ursula whatever she needs to protect herself.
Sincerely,
Amanda
It's more like "Dear George, thank you for donating this money to our cause that I'm sure you agree with or else. Sincerely Amanda."
Not sure how I'd feel about that, regardless of how I feel about Ursula, Suzy, Natalie, Faye, Denise, Izzie, Romina, Molly, Trudy, or any of the girls in my class.
The war in Ukraine didn't cause the inflation (I think), although I admit it probably made it worse. I think it was the other way around. The prospect of inflation caused the war in Ukraine. Russia thought with all the challenges we would face, we wouldn't react to an invasion in Ukraine.
I'm not an expert in macro economics, so do you think there wouldn't be an inflation if Russia didn't invade Ukraine?
1) Russians have money
2) Russians signaled that they want to pay
3) Again, Western sanctions are hitting against the own people, Russia cannot pay because the West excluded them from the payment mechanism
4) Russia has set up its own payment mechanism and is ready to fulfill the payment obligation fully in Rubels
5) The risk for all Western people is now to claim that money as financial trades with/in Russia are illegal now and they will face punishment by the West
Just a sad story. My wood pallets supplier here in Germany went bancrupt a few days ago as the product was coming from Russia and is sanctioned now. The house (with 35 units) is already 6 days without hot water. The company that manages the building got an alternative: delivery in 2 weeks, price +200%.
This is not my war, I oppose those sanctions. I have the feeling that the G7 reaction is wrong and I disagree with it. I am SO CLOSE before going on the street for the first time in my life. I FULLY disagree with all the current Western anti-Russian politics.
Anyway, I will protest against this if the government cannot fix it asap. My friends have voiced similar opinions.
And your point is wrong. We ARE already in a direct war with Russia. And it was our decision.
The US has set a high standard, nothing like napalming Vietnamese villages in case some guerilla fighters happen to be hiding there. (Or what about airstriking a busy highway and then releasing a "non-ideological" videogame blaming them CCCP/Russian Federation for it)
Even on just the political violence side: https://www.wikiwand.com/en/United_States_involvement_in_reg...
I would also consider this a somewhat different situation than e.g. the unjustified Iraq war as this is a plain invasion for territory.
People like me feel sold for fools when there are double standards.
I will disagree with the Western reaction as long as countries like the US are not paying their fair share for the atrocities they have done.
And you argument is not valid at all. "At least the Americans were bombing those brown people for demoncrency!!"
500.000 dead kids!
Albright, the “passionate force for freedom, democracy and human rights”, thought it was all “worth it”.
https://www.aljazeera.com/opinions/2022/3/25/lets-remember-m...
Typical response to a clear indication of a hypocritical behaviour devoid of any common standards and equalising principles.
> If you want to compare apples to apples, then go ahead and tell what has Ukraine invaded so that it deserved being invaded back by Russia? Don't make up your own rules and then play by them. <
Ukraine wholly supported the US in their invasion of Iraq in 2003, and did send its 5th and 6th mechanised brigades to aid their ally in a war started under a false pretense [1][2].
[1] https://en.wikipedia.org/wiki/5th_Mechanized_Brigade_(Ukrain...
[2] https://en.wikipedia.org/wiki/6th_Mechanized_Brigade_(Ukrain...
Eastern Europe and the Baltics are just following the lead of the big boys, similar to how a well-behaved child looks to their parent for approval before doing something.
This is completely out of touch with reality: Eastern Europe and the Baltics are leading this, not following.
If the US and Germany wouldn’t be in, the rest of the sanctions would be worth nothing.
Do we want double-digit inflation and 4x-6x-?x heating prices though? If only the EU actually had a plan instead of throwing sanctions at the wall…
I very much hope you will feel same pain as people of Ukraine do right now, because people like you never understand anything they did not feel themselves.
Heating, food, housing are among the most basic needs of a human. If they’re in danger, you bet that the pain of people that they’ve never met, thousands of kilometers away will be less important.
This kind of moral absolutism is out of touch with reality.
Why do you assume I'm more like you then them. Not everyone dwindles in face of danger.
Of course, now that the EU have firmly positioned themselves, Russia may have revised its relationship to Germany. It’s not excluded that they’d completely cut off gas, sending Germany and the EU into a deep recession.
But on the positive side, I think Mr. Scholz, Mr. Macron and their peers will not have issues with heating or putting food on the table. We have to stay positive and remember that this is all for a good cause though and supporting good causes is what the EU exists for.
Did you oppose Germany's excessive reliance on Russian gas?
Instead we will now import:
1) overprices, extremly dirty American fracking gas - that might lead to unrests in the US if the price is increasing further
2) LNG from Qatar, just another bad state with a long track of terrorism support and human rights violations
But for some reason 1 + 2 are OK now.
You cannot be serious. Gas is a fossil fuel that emits CO2, huge amounts of it. Germany's overreliance on gas is among the reasons why their CO2/KWh is multiple times that of neighbouring countries (bar Poland who are still on coal).
And a fully renewable grid will be too unstable without significant storage. Are there plans in Germany for that?