With sanctions making it harder for Russia to pay its debt, the nation is close to its first default in more than a century, according to a weekend note from Standard & Poor's.
The Russian President attended his New Year address.
Russia was placed under aselective default by S&P on Saturday, after the nation made about $649 million worth of coupon payments in the Russian ruble despite an obligation to pay.
Russia has a 30-day grace period before a default is declared, but the ratings agency doesn't think the nation will be able to make the payments in U.S. dollars within the allotted time.
The Russian Ministry of Finance said in a statement last week that it was forced to make the payment in rubles due to the U.S. Treasury's sanctions.
Even after S&P warned, Moscow officials were not going to change their minds: Finance Minister Anton Siluanov said they would be sued if they default.
Siluanov said that officials would be present in court to confirm our efforts to pay in foreign currency and in rubles, and that it would not be an easy process.
If Russia were to default, it would further cut the nation off from global credit markets and cause it to suffer a serious recession like that experienced during the swine flu.
Russia's ability to honor its obligations to foreign debt holders is likely to be hampered by increased sanctions in the coming weeks.
Siluanov said that Russia tried in good faith to pay off external debts.
Moody's notes worth about $100 million are due on May 27.
Since Russian President Vladimir Putin ordered an invasion of Ukraine on February 23, there has been a growing list of sanctions against the Russian economy. Russian President Vladimir Putin issued a decree on March 5 allowing for the repayment of foreign currency-denominated debt in rubles, a move that would effectively amount to a default under contractual terms as the nation becomes increasingly unattractive to global investors. Russia doubled domestic interest rates to 20% to prop up its ailing currency after it plummeted to a record low against the dollar.
The ruble has recovered from its losses, but it is not clear how long the recovery will last. The ruble fell after the central bank said it would relax some of the measures.
The U.S. adds pressure on Russia by blocking bond payments.
Russia's Creditors may have to choose between getting paid in Rubles or not getting paid at all.
Russia is threatening legal action over default.
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