Will Russia repay its debts?
Tim Samples, professor at the University of Georgia Business School (Tim Samples, Terry College of Business, University of Georgia) told Voice of America about what Russia’s default means for diseases
Voice of America: What does the default declared in Russia mean for infection?
Tim Samples: Russia’s default creates such uncertainty. In many ways, this is an unusual and strange default. The course of action will differ from the usual pattern that can be expected in the event of a limitation of insolvency on government bonds. Russia is a debtor, and this is a special kind of default with very peculiar bonds. The commitments that Russia has seen on the market have some unusual characteristics. Collecting debt on sovereign bonds is always difficult if the debtor does not want to run the country is not as easy as forcing a company or an individual.
Collecting debt on sovereign bonds is always difficult if the debtor does not want to run the country is not as easy as forcing a company or an individual.
G.A.: What do investors do in this case?
T.S.: The speed of recourse to the courts that would declare Russia in default should be judged by the jurisdiction over the default. In fact, bonds are the same contracts, and in order to ensure the protection of these contracts, the necessary check on the judicial system, will review the contract, and then apply remedies and enforce it. In the case of some certain bonds due to non-controlled jurisdiction or non-affirmation of sovereign immunity G.A.), which is a significant hallmark of the appearance of external lighting. These features of Russian bonds imply uncertainty in debt collection. Even if the court declares jurisdiction, the investors win the case and the court rules in their use, they will still need to convince Russia for funding or confiscate Russian-owned assets in order to control the judgment. All this is difficult to do, especially with contract producers like Russian bonds.
G.A.: is this an unusual obligation?
TS: First, – not all – bonds have exceptional features that linger after the annexation of Crimea. For example, the lack of indications of jurisdiction. Some bonds indicate that British law is binding, but do not indicate that Russia agrees to the jurisdiction of British courts – they do not, for example, have Russian sovereign immunity, and this applies to almost all bonds. Another unusual feature of Russian bonds, which has caused a lot of controversy and interest, is that bonds are usually found in euros, dollars, British pounds, and some bonds contain vague provisions on the possibility of payment in other currencies, for example, in cases where in rubles.
G.A.: Does this mean that investors are taking risks by acquiring such liabilities?
T.S.: Any investment is a risk. But if you carefully read the terms of a bond before buying it – I’m not sure all investors do this – you will find that there is a serious risk of wrongdoing if Russia refuses or does something possible that we saw in connection with the war. This scenario will only go so far. But they took the risk! I’m not sure that investors have appreciated this risk, but now they have to face the consequences.
G.A.: Is there a very serious prospect that Russian assets abroad may be frozen?
So it is very convenient for investors.
T.S.: We’ve done it before. For example, when heavy lawsuits pile up that accumulate on Argentina’s assets in various jurisdictions. It turned out to be very difficult to do this, and investors were unable to achieve the result of most of the court decisions. It must be said that the cat-and-mouse game, which is essentially an asset hunt, is a rather expensive and complex event. So it is very convenient for investors. Of course they can try. An accelerated step in case of a positive court verdict. But, as we said earlier, even in this case, debt collection will be quite an interesting and uncertain task. If you want to get a positive court decision, then you should be more serious about finding and prosecuting assets, arresting them in Russia in various jurisdictions. This raises, however, another problem with the fact that at the moment many people claim the assets of Russia, including Ukraine, which can lead to the seizure of assets to compensate for causal damage.
G.A.: Does this mean that investors will get in line for debt recovery?
if we imagine that Russian assets consume their pie, then it does not get bigger – it shrinks. The queue of those wishing to bite off a piece of this pie is getting longer every day.
T.S.: It’s hard to say in what order they will be paid, and this is partly due to the fact that sovereign bankruptcy is very vague – it does not exist as a system, it is an ad hoc system, so everything happens differently every time, there is no set of rules, no central court to restructure sovereign debt. However, if we imagine that Russian assets are consuming their pie, then it does not get bigger – it shrinks. The queue of those wishing to bite off a piece of this pie is getting longer every day.
G.A.: Does Russia have any chance to challenge the default in court?
T.S.: Russia certainly can do it – and I believe it will, it considers itself a victim. Official statements of state officials of the parish on this. They say: “We did not declare a default – the default was not a default and did not reveal through our fault, but was the result of Western meetings.” As arguments that contradict the Russian version: Russia did not order to invade Ukraine and that is why external influences are not connected with Russia making these contracts.
G.A.: The probability of default can preserve the ability of Russia to keep the war in Ukraine?
I do not think that the default will show in the short term a direct impact on the ability to develop combat operations.
T.S.: In my opinion, population default is a real weakness of Russia’s sovereign registries, so the West can force Russia to default the population. This is a fairly significant reflection of the coverage of the West and, frankly, the coverage of Russia’s statistics in the global financial system. However, in the natural markets, Russia has incredible strength, and this keeps it afloat. I don’t think the default seems to have a direct impact on Russia’s ability to fight in the short term.
G.A.: How will Russia continue to attract the attention of foreign citizens?
T.S: The more Western companies enter the Russian market, the more isolated the Russian economy becomes. It becomes more vulnerable in negotiations with key partners, which is why it is so important to diversify partnerships. In the long term, Russia will suffer economic damage, an expected probability due to Western capital markets and forced purchases, for example, only for China and India in contracts for the supply, collection or financing of debt obligations. In addition, these conditions will not be very good, it will be more difficult for Russia to finance projects. Similar dynamics can be seen in other aspects of the economy.
G.A.: Probably Russia is facing this default and why can it happen in China and in India under the conditions?
Russia takes a lot of time and money to build a reputation for good treatment, and a default brings these difficulties.
T.S.: A very interesting question. We’re talking about this indeterminate relation, applicable with a default value. But there is one thing that is completely fair – Russia has an anxiety about freedom and is very worried about the prevention of default, it pursues quite a lot for it. It is quite difficult to decide why Russia did not want a default, I have not seen a single official statement on this matter. Russia takes a lot of time and money to build a reputation for taking and a default haunting those losses also makes Russian financial taking more expensive. In the short term, energy imports will partially solve this problem, but, of course, this is an unpleasant situation.
G.A.: Perhaps Russia is able to reorient its financial market towards China and India?
T.S.: I don’t know the answer yet. China is increasingly demanding more favorable conditions from Russia, and in fact Russia has no choice – if China does not finance, then who does it turn to? In the expected future, this is not the best situation for Russia.
G.A.: What can investors do to get money from Russia?
T.S.: We know that the process of recovering debts of debts in a natural way, investors by solving many legal costs, we do not know in which courts and with what assets these debts will be reimbursed. But we know for sure that it will be a very long process. In fact, some investors are likely to decide and see what will affect rather than aggressively affect debt recovery right now, because the road to debt recovery is very long, difficult and expensive.