By imposing sanctions and freezing Russia’s forex assets, the West is trying to turn Russia into a failed state or at the very least make it look like one. Writes Drago Bosnic
When a country defaults, it disposes of (or ignores, depending on the viewpoint) its financial obligations towards its creditors. The immediate consequence for the country is a reduction in its total debt and a reduction or even cessation of payments on the interest of that debt. A credit rating agency then takes this into account in its gradings of capital, interest, extraneous and procedural defaults, and failures to abide by the terms of bonds or other debt instruments. In short, the country in question becomes a geo-economic pariah.
This is exactly the fate which the political West wants to ensure for Russia. By freezing (or more precisely, stealing) Russian foreign exchange reserves outside of Russia’s direct control, the political West is trying to bleed Russia dry and force it into a default which would then isolate the country and make trading with Russia not just hard, but nearly impossible. This geopolitical tool has been the mainstay of non-kinetic segments of Western hybrid warfare against the world for over half a century now. And it might work against small to middle size countries.
However, Russia is neither of those. Apart from being an energy superpower which is a net exporter of natural gas, oil, rare earth metals and nonmetals, fertilizer, food and many other commodities which are absolutely essential to the world, Russia is also an industrial power which produces heavy machinery, chemical products, manufacturing tools, etc. Trying to isolate a country without which the world virtually stops is simply impossible.
Other countries targeted by US sanctions are finding ways to circumvent them, because there are other countries which need their commodities. This is true for Venezuela, Iran, Cuba, Syria and even North Korea, which bore the brunt of Western sanctions up until two months ago. If these relatively small or middle size countries can find workarounds and willing customers, why would anyone think Russia can’t? Rather schizophrenically, the political West itself is trying to find ways to circumvent its own sanctions.
Still, this doesn’t stop the West from trying to make Russia’s life as difficult as possible. By imposing sanctions and freezing Russia’s forex assets, the West is trying to turn Russia into a failed state or at the very least make it look like one. However, Russia’s Central Bank, the Ministry of Finance and other financial giants (both private and state-owned) have coordinated their efforts to make this virtually impossible or at least de facto meaningless.
“Real default is out of the question. Russia’s financial position always was and still is very stable, reserves of the Bank of Russia exceed the entire state external debt. There would be no problems with settlements if there was at least some rational policy from our Western partners,” Andrey Kostin, chairman of VTB Bank said.
According to the Russian Ministry of Finance, as of February 1, 2022, Russia’s external public debt amounted to $59.5 billion, including debt on external bonded loans – $38.97 billion. In total, Russia has 15 active bond-secured loans with maturities from 2022 to 2047.
Earlier, Finance Minister Anton Siluanov stated the country would pay its foreign currency-denominated debt only if its forex reserves were unfrozen. In case of refusal or lack of response from agent banks, Russia would then proceed to pay and service its foreign exchange obligations in rubles.
It’s clear that any actual default by Russia would simply be impossible, even with its foreign exchange reserves frozen or even stolen. In fact, Western refusal to give Russia its own money can only be described as an actual default by the political West. And given the debt-to-GDP ratio of the West and its vassals, their default seems far more likely than Russia’s ever did, even during the 1990s, when Russia was dealing with the shock of Soviet collapse.
Another obvious question also arises. Why would Russia pay its external debt to Western creditors when those same creditors are illegally withholding Russia’s money? With the frozen forex sum being anywhere between $300 and $400 billion and Russia’s total external debt being around $550-600 billion, these same creditors have a lot to lose. And that’s even without Russia deciding to nationalize or simply confiscate Western investment in Russia, which is orders of magnitude greater. Russia has decided to still not do this, because it wants to uphold the rule of law, unlike the political West, which has adopted an ad hoc approach of stealing assets, which goes against their own legislation.
Major Western financial institutions have been rather quiet about this supposed default, which can only be explained by their silent disagreement with the way the global financial system has been politicized. This is true, even for institutions such as Goldman Sachs, which has stated that Russia’s sovereign debt problems are technical and don’t accurately reflect the underlying creditworthiness of the government.
“In our view, this reflects the technical nature of Russia’s debt servicing issues, which we think are far-removed from the underlying credit dynamics,” Goldman analyst Farouk Soussa stated.
He further added Russia’s score would have even improved, were it not for the events in Ukraine and the resulting Western sanctions, because higher commodities prices have boosted its trade balance. Obviously, Russia still has the same commodities in abundance and it will have them in the foreseeable future.
Thus, it’s virtually impossible for independent countries around the world to even consider this supposed default an actual one, even in the case that Western financial institutions were to proclaim one. In the end, they are far more likely to damage their own reputation. The world is unsustainable without Russia’s food, oil, gas and other commodities, because printing trillions of dollars or euros of worthless paper money cannot feed the hungry, fuel transportation or help produce actual goods.
Drago Bosnic, independent geopolitical and military analyst.
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