WASHINGTON, May 30. /TASS/. The consequences of Russia’s possible technical default on its external debt are expected to be ‘largely symbolic’ against the backdrop of sanctions imposed on Moscow by Western countries, a US expert has told TASS.
"From what I can see, letting GL9A expire would very likely cause a default by freezing Russia’s payment stream to bondholders (once the grace periods run out, of course)," said Tim Samples, Associate Professor of Legal Studies, Terry College of Business, University of Georgia.
At the same time, the expert said the current situation was an unusual one.
"Most sovereign defaults are prompted by an economic crisis or liquidity crunch. Other times, a sovereign might repudiate certain debts. But this scenario - a sovereign forced into default by sanctions imposed by another sovereign - is indeed an unusual case," he said.
"Major sovereign defaults tend to have some lasting consequences and economic difficulties. One thing that is different about this default: the sanctions have already isolated the Russian economy a great deal. So, in some ways, the implications might be largely symbolic. For instance, if the United States sanctions force Russia into an involuntary default, that would reflect a disparity in the sovereignty of the two governments, for sure," the US expert added.
Speaking about the causes of the possible default and its peculiarities, the expert said the 2014 situation in Argentina was the closest parallel to the current situation.
"The closest parallel I can see is with Argentina’s 2014 default. Argentina was blocked from making payments to bondholders by an injunction imposed by federal court in New York. The court’s injunctions, of course, were not the kind of sanctions facing Russia. But they had similar effect: Argentina, though willing to pay, was unable to pay," he said.
Last week, the US Treasury did not extend the term of the general license allowing Russia to make payments to service its external debt, it expired on May 25 at 07:01 Moscow time. This license excluded payments for servicing a part of Russia’s sovereign debt from anti-Russian sanctions. The term of its validity was originally set until May 25, but there was an option to extend it.
Russia will continue to fulfill its obligations on external public debt, despite the refusal of the US Treasury to renew the license for servicing it, payments will be made in rubles, the Finance Ministry said shortly after.
On February 24, Russian President Vladimir Putin launched a special military operation in response to a request for help from the heads of the Donbass republics. He stressed that Moscow had no plans of occupying Ukrainian territories, but aimed to demilitarize and denazify the country. The US and its allies responded with severe sanctions and ramped up weapons supplies to Kiev.