Is the Kremlin unable or unwilling to pay its international obligations in dollars? The unpredictability of the situation in Russia is a challenge even for the most eminent financial experts.
Memories come back to 1998, when Russia declared its state bankruptcy. Can this scenario be repeated? Even trusted financial experts like Jochen Felsenheimer don’t give a concrete prediction. “The situation is such that nothing can be predicted,” he said.
Here’s an example: Russia has to pay $117 million in interest to international investors on two loans. But the dollar accounts of the Russian Central Bank abroad are frozen, the money is blocked.
Can’t or don’t want to?
Can interest payments in dollars reach investors? According to Russian expert Andreas Menik, the country can use its gold reserves. “They can sell the gold anyway – because 100 million is not much – to pay their debts.” However, someone needs to buy this gold and exchange it for dollars – for example, China.
However, even if Russia can pay, the question is whether the Kremlin even has such a desire. This is crucial, Felsenheimer said: “There is certainly an argument in Russia: we will leave the money for now, because in the future we still cannot expect payments from the West.”
In fact, Russian Finance Minister Anton Siluanov already approved two interest payments earlier this week. At the same time, he did not specify whether the country would pay in dollars or rubles, which is not allowed in this case. If Russia does not pay interest or pay in rubles, then the country will most likely be declared insolvent – i.e. go bankrupt. But not right away, says expert Felsenheimer. “After the payment date, there is still 30 days during which this can be done,” he explained. “Non-payment can be discussed only after the expiration of this period.”
Russia still has solid incomes
But even if the bankruptcy of the country is confirmed in mid-April, this does not mean that not a penny will remain. It will only mean that the Kremlin is unable or unwilling to pay dollars to international investors.
There will be no consequences for civil servants in the country and for pensions, Menike said. “I do not see any problems with the payment of salaries to civil servants. Putin will take care of them, otherwise discontent will immediately rise.” And, according to Menik, the Russian president can and will prevent this. Because international business, especially oil business, brings Russia big profits. With them, the Kremlin can pay off most of its debts – so far.