“Forcing Russia to default is part of the political game”

Forty billion dollars. This is the estimated amount of Russian foreign debt, and one of the many points of tension between Moscow and the West since the start of the invasion in Ukraine at the end of February. For several weeks, Russia continued to reimburse normally, according to the deadlines. But in early April, among sanctions taken to put pressure on the Kremlin, the US Treasury banned it from repaying its debt with dollars placed in US banks.

Moscow therefore made payments in rubles, then again in dollars – still not placed in the United States. Can we speak of payment default (see box)? For what consequences? 20 minutes questioned Carl Grekou, economist at the Center for Prospective Studies and International Information (CEPII), a specialist in macroeconomics and international finance.

Is Russia currently in default on its debt?

This is not a usual default, in the sense of an inability to repay debt, but rather a technical default. Russia has the capacity to repay its debt, but it faces creditors who refuse financial transactions through the usual channels.

That is to say ?

Concretely, Washington refuses payments from Russia with dollars held in the United States. So Moscow can no longer repay its debt. It’s as if you went to the grocer, and he says to you: “I refuse that you make transactions with me in euros”. So if you don’t have other currencies, technically you can’t shop.

It’s the same for Russia: it has the dollars to honor its debts, but it cannot use them because Washington refuses to take them. It is a way of isolating Russia and forcing it into default. But she has other assets in other countries, which are not frozen.

Especially since Russia continues to supply Europe with energy, so that its trade balance suffers little…

Yes, and at the same time Westerners are blocking imports to Russia. Which, mechanically, gives him more surpluses. Russia will most likely redistribute its demand for imported goods, rather to the benefit of China, which can perfectly substitute for Western products.

The main Western rating agencies – Fitch, Moody’s, S&P Global Ratings – have abandoned the assessment of Russian debt. How to interpret it?

It’s a political game. On the one hand, Russia has the capacity to honor its debt. On the other hand, the West uses the entire financial and economic machine – in particular the downgrading of ratings via these agencies – without asking the question of the origin of the default. However, the latter is purely due to Russia’s isolation, and not to its ability to repay. The ratings of these agencies are actually one more weapon.

Russia is one of the only countries in the world that are not creditors: it has more claims than debts, and its claims are mainly, if not exclusively, in foreign currencies (dollars, euros, etc.). However, as we said above: Westerners refuse to honor these debts.

So what about the short term for Russian debt?

Moscow has put in place many safeguards so as not to be fooled, and the country has experience in the field. There is no short-term consequence, but more, perhaps, for future borrowings.

To whom can Russia turn? Mainly to Asia?

I will not be surprised if countries agree to lend to Russia, possibly at slightly higher interest rates. Otherwise, there is always China which could lend. But I am not sure that it is interesting for Moscow to throw itself into the mouth of the wolf…