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Astana, Kazakhstan • 04 November, 2022 | 13:38
3 min read

Will Default in Russia Affect Kazakhstan?

Experts agree that there is nothing to be concerned about yet

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Kazakh economists explained what Russia's technical default actually means, why it is necessary and whether it will affect Kazakhstan and the tenge exchange rate, QazMonitor reports citing Tengrinews.kz.

Russia has defaulted on its sovereign debt in foreign currency, Bloomberg agency announced Monday morning. A grace period of about $100 million in interest payments reportedly expired Sunday night. For Russia, this means a default, even if the Russian Finance Ministry refuses to acknowledge it, the agency explained.

The default in Russia is not real?

Independent financial analyst Andrei Chebotarev clarified that Russia's default is technical, and explained the difference between a technical and a real default.

Andrei Chebotarev (photo credit: Ruslan Pryanikov)
Andrei Chebotarev (photo credit: Ruslan Pryanikov)

"Technical [default] is when you can service your debts, but you don't want to. Every time anyone who has taken out a loan is at least one minute late, for example, he has a payment deadline of 17:00 on June 26, and he pays at 18:00 - he is allowing a technical default. It is not so important for a person, but it is important for the country. A real default is when a state or a person has no money to pay. This describes the situation for Argentina, Lebanon, and recently Sri Lanka. The global difference is that a technical default does not affect the domestic economy and a real default is a complete collapse."

Andrei Chebotarev, financial analyst

He explained that Russia issued bonds that were bought with foreign currency - dollars. Consequently, interest payments on such bonds must also go in dollars. But all of Russia's foreign dollar accounts are blocked because of sanctions. So Russia decided to pay the debt in rubles.

"A technical default launches a legal procedure to take back the money. Imagine you have a neighbor, who borrowed money from you and does not pay you back. You have all the contracts signed, and the receipts promising that he or she will pay. When your neighbor misses the deadline, you go to court and show the documents and the terms. The court agrees and says that your neighbor has money in their accounts, and by court order, the money is issued from these accounts. If the money in the accounts is insufficient, the court will review the assets kept abroad. In this case, they can arrest Russia's property, some joint ventures and shares that belong to the state. Technical default launches a rather unpleasant procedure of debt seizure," explained the analyst.

This means the default can affect Kazakhstan only if the Western partners will focus their attention on some assets located in Kazakhstan that belong to Russia. But, according to the analyst, this is unlikely in the near future, since the amount of debt is small. According to him, the process of extracting the money may take months or even years. Arbitration courts do not operate so fast.

The fall has no bottom

Magbat Spanov, an expert at the Institute of World Economy and Politics, said that $100 million is a very small amount for Russia.

Magbat Spanov (photo credit: voxpopuli.kz)
Magbat Spanov (photo credit: voxpopuli.kz)

"The default is essentially man-made. Therefore, such a situation does not happen often, and we will still see a lot of interesting things happen. In terms of foreign exchange reserves, the [payment] amount is tiny. Every month Russia receives an income of $20 billion. The situation here has more of a psychological effect. The investment climate in Russia is already worsening, and this will worsen it even more. The fall has no bottom," said the expert.

He also assured that for Kazakhstan, the current default of Russia poses almost no risks.

The only risk is if Russia announces that it will not pay any debts at all. This will also affect our country, as our National Fund also has securities of Russia and will not receive profitable warrants.

Magbat Spanov, expert at the Institute of World Economy and Politics
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