Russia defaulted for first time in a century

New York City's CNN Business has defaulted on its foreign debt for the first time since the Bolshevik revolution more than a century ago.

The White House said the default showed the power of Western sanctions on Russia since it invaded Ukraine after reports that Moscow had failed to pay $100 million in interest on two bonds during a 30 day grace period that expired Sunday.

A senior administration official said this morning about Russia's default, for the first time in a century, is a reflection of how strong the reaction is that the US, along with allies and partners, has had an impact on Russia's economy.

Russia denied it was in default, saying the payments had been made in dollars and euros on May 27 and the money was stuck with Euroclear, a settlement house in Belgium.

The US Treasury ended its sanctions on US bondholders after half of Russia's foreign reserves were frozen and the US Treasury ended a carve-out from sanctions that had allowed US bondholders to be repaid by Russia.

The European Union made it harder for Moscow to meet its debt obligations earlier this month by sanctioning Russia's National Settlement Depository, the country's agent for foreign currency bonds.

It took longer than many had anticipated: Sanctions have largely failed to cripple Russia's economy, as surging energy prices have padded the country's coffers.

In April of this year, the country was able to pay back creditors with dollars after a long saga that put it on the brink of default. The finance ministry said in April that it made a $565 million eurobond due this year, as well as an $84 million eurobond that was due in 2024. The finance ministry claimed that both payments were made in US dollars, as required by the bond's contract stipulations.

It wasn't possible this time around, given the recent moves by the US and EU authorities.

The Russian Finance Minister Siluanov was quoted by state-owned news agency Ria Novosti as saying last week that Moscow had no other way of getting funds to investors, except to make payments in Russian rubles. The Russian finance ministry said in a Telegram post on May 27 that the Russian National Settlement Depository had made the necessary payments of $71 million and €26.5 million.

Dmitry Peskov, a Kremlin spokesman, said on Monday that the allegations of default are incorrect because the necessary currency payment was made as early as in May.

The fact that money transferred to Euroclear was not delivered to investors was not our problem, he said.

He said there was no grounds to call it a default.

Euroclear can't settle any securities with counterparties that are subject to sanctions.

The Kremlin has built up about $640 billion in foreign reserves since 2014, the last time the West sanctioned Russia over its annexation of Crimea. Half of those funds are now frozen under Western sanctions imposed after the invasion of Ukraine.

It is not clear what effect the default will have on Russia's economy in the near term, as the country is already unable to borrow abroad and its existing bonds have collapsed in value to pennies on the dollar.

Russians are going to suffer a lot in the long term. The country's assault on Ukraine has left it with few friends in the international community, and it's likely that the default will cut off access to foreign financing for years.