Global Credit rating agency Standard&Poors (S&P) reported on April 11 that the Russian Federation has defaulted on its foreign loans after it attempted to pay bondholders in rubles instead of dollars.

S&P has lowered Russia’s credit rating to a “selective default” after it offered to use rubles to pay two dollar-denominated Eurobonds that matured last April 4. The agency explained the rationale behind the credit rating downgrade despite Russia’s attempt to pay using its home currency:

“We currently don’t expect that investors will be able to convert those ruble payments into dollars equivalent to the originally due amounts or that the government will convert those payments within a 30-day grace period,” S&P said in a statement.

Moscow has a 30-day grace period to provide payments of capital and interest, but S&P believes it will probably receive more sanctions in the coming weeks as it continues its war on Ukraine. This will hamper “Russia’s willingness and technical abilities to honor the terms and conditions of its obligations to foreign debtholders,” said the agency.

Russian Finance Minister Anton Siluanov in 2015 (MaslovaN, CC BY-SA 4.0 , via Wikimedia Commons). Source:
Russian Finance Minister Anton Siluanov in 2015 (MaslovaNCC BY-SA 4.0, via Wikimedia Commons)

If this continues, Russia will see its first full foreign currency default since the aftermath of the 1917 revolution, which put the Bolsheviks in power over a century ago. Last week, Russian Finance Minister Anton Siluanov tried to reassure creditors that they would get paid.

“We will do everything so creditors receive their invested money from the Russian Federation,” Siluanov said.

Siluanov maintains Russia has consistently tried to pay its foreign creditors in “good faith.” He blames the “deliberate policy of Western countries” to force Moscow into a “man-made default.”

According to the Russian Finance Minister, Moscow’s external debt makes up roughly 20% of its total public liabilities, which sits at around 21 trillion rubles or $261.7 billion.