Russia defaults: what’s left at a week?
A week ago the famous "Default" on Russia's foreign debt took place. A contested default, because the Russian federation claimed to have deposited the relevant figures in the Euroclear system, which deals with this type of transaction. The figure was ridiculous: 100 million dollars, for a state that collects billions from oil and gas exports. A default caused by sanctions, and not due to Russia's lack of foreign currency.
Well what happened? NOTHING
The Ruble is still at pre-covid levels, not even pre-war in Ukraine
Supported by a powerful current account surplus, the Ruble holds, indeed it is far too strong, as it is NOT offset by European or American exports. A Nobel Prize should really be given to anyone who has made the export of shoes or grana cheese problematic, known tools useful for the war effort in Moscow. On the other hand, without Russian gas, Germany is going straight ahead like a train in crisis and we are not feeling very well either.
Indeed the sanctions, having made the market uncertain, have caused the costs of energy materials to explode, improving Russia's international position.
So the default hasn't hurt Russia, and, in the short term, it won't hurt Russia. It has certainly damaged Western institutions that have Russian securities in their portfolios whose ratings are now in default. Banks will have to divert capital from loans to cover them.
In the medium term, in theory, there should be a decline in foreign investment in Russia. Private companies rarely have a higher rating than the states so official channels will finance less investments in Russia, and the flow of these resources had been interesting in the past. But there is a "But", and very large. The economy bypasses dams and artificial obstacles, and money will continue to flow, if well paid and guaranteed, even to Russia.
What this artificial default teaches: that the real economy, that of industries, productive activities, agricultural, energy and mineral resources doesn't care about a default. This is a basic fact that we have forgotten, always chasing a crazy ECB and indicators such as spread, debt / GDP, instead of caring about how much grain, cattle, steel, iron, cars, trains, energy, aircraft we manufacture and build. We ran 30 years behind a financial illusion, the holography of the economy, and now they're offering us a rude awakening.
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The article Default of Russia: what's left to a week? comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/default-della-russia-cosa-rimane-a-una-settimana/ on Mon, 04 Jul 2022 09:47:51 +0000.