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Russia defaults on foreign debt for first time since World War I

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Russia defaulted on its foreign debt obligations for the primary time since 1918 on Monday following months of speculation that crippling Western sanctions in response to the Ukraine war would force the Kremlin into nonpayment.

The historic default occurred after Russia did not make roughly $100 million in interest payments on two dollar- and euro-denominated international bonds inside a 30-day grace period. The payments were originally due May 27.

The White House and other Western officials have anticipated a Russian default for months after sanctions effectively severed the Kremlin’s access to the worldwide economy. The US and other nations imposed sweeping penalties in response to the brutal invasion of Ukraine.

“This morning’s news across the finding of Russia’s default, for the primary time in greater than a century, situates just how strong the actions are that the US, together with allies and partners have taken, in addition to how dramatic the impact has been on Russia’s economy,” a US official told Reuters on the G7 summit.

The Kremlin has decried the default as an “artificial situation” attributable to the West.Getty Images

The likelihood of a Russian debt default increased in late May, when the Treasury Department allowed a key payment waiver to run out — ensuring that US banks and individuals could not accept bond payments from the Russian government. Russia owes roughly $40 billion in internationally held sovereign debt.

The default is basically symbolic for a Russian economy that’s already weathering double-digit inflation, major GDP losses and a plunge in the worth of its ruble because the invasion began.

White House press secretary Karine Jean-Pierre said on the time that a default was imminent and that nonpayment would mark “an everlasting sign of their status as a pariah in the worldwide economic system.”

The Kremlin, which has continued to rake in huge profits from its oil and gas shipments in the course of the Ukraine war, has decried the default as an “artificial situation” — asserting that it has the cash to cover its debts and Western officials blocked payments from reaching bondholders.

“Statements of a default are absolutely unjustified,” Kremlin spokesperson Dmitry Peskov said Monday.

“The undeniable fact that Euroclear withheld this money and didn’t bring it to the recipients just isn’t our problem,” Peskov said, in keeping with Reuters. “There are absolutely no grounds to call such situation a default.”

Russian rublesWestern sanctions effectively disconnected Russia from the worldwide economy.Getty Images/iStockphoto

Despite its historic nature, the Russian default is unlikely to rattle European or global markets, in keeping with Giles Coghlan, an analyst at broker HYCM.

“As investors have been pricing within the default for months, at this stage the markets are taking a ‘wait and see’ approach — if the conflict in Ukraine fades over the medium term, then payments are likely resume in some unspecified time in the future,” Coghlan said. “At the very least for now, this may not affect European stocks or the euro as a consequence of the character of the default.”

Russia hadn’t defaulted on its foreign debt because the Bolshevik Revolution occurred during World War I. The Kremlin’s last default of any type occurred in 1998.

Experts told The Post in March that a Russian default would damage their economy and hurt investors, but was unlikely to cause a worldwide financial crisis.

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