Russia fails to pay debt but denies default

Russian government bonds: calendar of payments

Russia said Monday that two of its debt payments were blocked from reaching creditors, pushing the country closer to its first foreign default in a century due to sanctions over the Ukraine offensive.

The announcement came on the 124th day of Russia's military intervention in Ukraine, with Western sanctions so far failing to force the Kremlin to change its course.

The Russian authorities insist they have the funds to honour the country's debt, calling the predicament a "farce" and accusing the West of seeking to drive Moscow into a default artificially.

"These claims about default, they are absolutely wrong," he said, adding that Russia settled the debt in May.

- 'Vicious circle of decline' - 

Russia had attempted to make the payments, but the finance ministry said Monday that the money had not been transferred to creditors.

"The actions of foreign financial intermediaries are beyond the Russian finance ministry's control," the statement said.

"This default is important as it will impact on Russia's ratings, market access and financing costs for years to come," said Timothy Ash, an emerging markets strategist at BlueBay Asset Management.

- 'Locked Russia out' -

"Sanctions have already done the damage and locked Russia out of global capital markets," Peach said in a note.

After the United States closed the payment loophole last month, Russia said it would pay in rubles that could be converted into foreign currency, using a Russian financial institution as a paying agent, even though the bonds do not allow payments in the local currency.

Russia defaulted on domestic debt in 1998 when, due to a drop in commodity prices, it faced a financial squeeze that prevented it from propping up the ruble and paying off debts that accumulated during the first war in Chechnya.

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