Deadbeat Russia defaults on debt

Originally published at: Deadbeat Russia defaults on debt | Boing Boing

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560470417-wimpy1

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Maybe sell Sakhalin and Kamchatka to the USA like they did with Alaska. Although Japan has fist dibs on Sakhalin I would guess.

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Here’s a theory that went through my head this morning.

What if Russia was about to default its debt regardless of whether or not it invaded Ukraine?

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You never give up Kamchatka without a fight!

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Well my understanding is that they have the money in Western bank accounts, but those have been frozen by sanctions. So rather than being deadbeats they’re being prevented from making payments. So, evil war criminals attempting genocide, but perhaps not best characterized as deadbeats.

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That’s kind of like saying a guy who failed to make child support payments isn’t a deadbeat because the SEC froze his offshore assets.

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I’d suggest making a sarcastic offer of some of our crack management consultants and finance wonks to sort out their sovereign debt problem; but given the number of Russians who still remember how the post-Soviet crash privatization went down I suspect that would get us nuked more reliably than just about any ‘lethal aid’ we could sent to Ukrainian troops.

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Are these debts to corporations or debts to states? If they are debts to states, I actually have a vague feeling that they could in fact use frozen assets to pay for those ‘particular’ debts. The purpose of freezing the assets is so that Russia is not free to spend them just anywhere, but I suspect they could be negotiated to use those funds as payment for outstanding national debts. That would all of course need to be negotiated behind closed doors, and I am certainly not an expert in international finance, so that’s just my two cents worth. Pure speculation.

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Disclaimer: I am not an economist.

“Was going to default anyway” doesn’t fit with the debt to GDP ratio or the reserves that Russia had piled up in foreign banks. My understanding is that a major root cause of the default is the sanctions preventing Russia from accessing its overseas reserves.

I believe Russia has serious structural issues with its economy. Most of the economy hangs on the price of oil, and Russian oil is expensive to extract. But that’s a decade-scale problem to fix, not a month-scale.

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I think your theory is easily disproven.

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Nah, if you were amoral enough to lend Russia money, you deserve what you’re getting. No bailout for you.

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Hm… it’s unclear to me what the result of this were to be if it came true. It’s not like a bank can collect, evict, or seize the Kremlin or the entire nation, right?

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It means that they potentially lose the benefit of time with regard to other outstanding debts, will find it very difficult to borrow money in the future and can expect much higher interest rates when they can get access to lending. One part of debt that people often do not think about is accepting delivery of a product or service and then rendering payment 45, 60 or 90 days later. A default means that they will likely need cash upfront from now on.

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One question I would have is “when” was this money lent before I could better understand the debt, but as @Jesse13927 says, this has more to do with future lending than past lending. All lending involves risk, sometimes you have to write it off. It is undoubtedly going to be another immense hurdle for them in perhaps their biggest quandary to date.

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Sure. If you write the check, the funds are there, but the government prevents the bank from disbursing the funds, you’re not the deadbeat. Frankly it surprised me that the governments in the West have done this. After all, the money is owed to banking and financial companies and therefore to the wealthy. And governments tend to be more concerned with who the money is owed to than who is paying it. An example being the bailout of AIG, which was more about saving the banks that had those payments listed as assets.

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Yes, but in this case the deadbeat was committing genocide so his allowance was cut off. It’s still the deadbeat’s fault.

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They know that the money is still out there in the form of frozen overseas assets so they’re probably not too concerned because they’re very likely to get paid eventually even if the Russian economy collapses. In the meantime, freezing these assets is a relatively easy way for the rest of the world to inflict economic pain on Russia. Certainly a better option than bombing their oil fields & factories, burning their crops or whatever.

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Oh, Putin’s a genocidal monster. He wants to eliminate not only the independent Ukrainian state, but the very IDEA of Ukraine. And the risk that Russia will be cut off from its funds, potentially for decades or more, because of his actions IS a risk that anybody should consider when thinking about lending money to Russia. After all, just as in the childcare case, if you’re not getting the money that you are owed, it doesn’t really matter why. But there is still a distinction between willingness and ability to pay.

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