Economic Sanctions Pushing Russia Closer to Bond Default

by Wall Street Rebel | Michael London | 04/09/2022 11:04 PM
Economic Sanctions Pushing Russia Closer to Bond Default

Russia may have international law on its side. The contracts for these bonds were so poorly negotiated, and written Russia may have a loophole that allows them to pay in Rubles.


The economic sanctions that are being layered week by week by the United States and dozens of nation's around the world in response to Russian Dictator Vladimir Putin's decision to invade Ukraine and murder thousands of civilians, including women and children, could be on the verge to forcing his country to default on the country's international debt.

Russia's inability to use American and its western ally's banks make it impossible for Russia to make its interest and principal payments in the required currency - U.S. dollars.

This past week Russia missed a $650 million bond payment on Monday, April 4, 2022. In a desperate tactical move, Russia transferred the payment in Russian rubles to its National Settlement Depository; despite the contracts requiring payment in dollars.

Business Insider's Harry Robertson wrote.   

"A default would likely unleash a long and complex battle between bondholders and the Russian state, although the Ukraine war and Western sanctions complicate matters."

According to University of Virginia Law Professor Mitu Gulati, an expert on foreign debt, the inability to make a payment will plunge the country into "Litigation chaos."

Professor Mitu Gulati went on to say…

"I think that Russia will surely not be able to get the money to bondholders. The question is whether that counts as a default or not,"

"This will be more complicated. Because usually, just the bondholders would form a committee, negotiate with the country, and the IMF would estimate how much they could pay. Now this time, we're going to have to figure out war reparations like who's going to pay for Ukraine's reconstruction."

"Russia has a lot of foreign assets, but the number of claimants on those foreign assets is multiplying at an exponential rate. Legally, you will have an advantage over others if your claim is first."

"Now, on the flip side of that, Western governments understand that this game is afoot. I will bet everything in my very small bank account that they are making plans to deter people from chasing these assets, saying, 'Look, nobody's going to get ahead of anybody else by getting judgments.'"

Professor Mitu Gulati explained that any defaults could have a long-ranging impact. During an interview with Business Insider, he went on to explain….

"These are the worst-written contracts I have ever seen on the international markets. They give so many advantages to Russia."

"If I were an investor, I would be like, 'Oh, my goodness. How is it possible that I have a debt contract that says Russia has the option to pay me in rubles? I didn't mean to agree to that."

The problem, however, for Russia is time is not on its side.

A legal battle over the currency that can be used to make bond payments could take years. Russia's Dictator Putin and his regime is experiencing a bad economic storm at a time when it's depleting its military of tens of billions of dollars on weapons, and its already suffered 15,000 military casualties and 45,000 wounded soldiers, wiping out 25% of its armed forces during its war against Ukraine.

The financial impact on Russia, combined with the heavy losses and the growing international economic sanctions, could put Putin in a desperate enough position that instead of committing war crimes executing Ukrainian civilians, using bombs and missiles to kill women and children in mass. Putin could turn to the use of chemical weapons.

If Putin resorts to using chemical weapons, it could backfire by motivating the United States and its NATO allies to supply another billion dollars in military assistance – this time including offensive weaponry that could facilitate forcing Russia's military to withdraw not only from the contested eastern regions of Ukraine but also Crimea. 

Quietly, while Russia has been withdrawing from the West and North of Ukrain the United States and its NATO allies are sending anti-aircraft weaponry, Russian manufactured tanks and armed vehicles, small arms, thousands of Javline missiles, 50 million rounds of ammunition and possibly the 80 MIG fighter Jets the Ukrainian government has been begging for since the outset of the war.


                       A First in the Russia-Ukraine War!



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