Defeating Putin: the development, implementation and impact of economic sanctions on Russia
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- There have been suggestions from Russia that it could pay in roubles, even where US dollars are required. Fitch has said that such an action would constitute a default.[1] Were Russia to do so, it would represent its first external debt default since 1917. As reported in Reuters, “Russia’s last major external debt default was over a century ago, when Bolsheviks failed to recognise Tsarist debt after the 1917 revolution”. Russia did previously default on its internal debts in 1998.[2]
- Following the invasion of Ukraine by Russia, each of the three major credit rating agencies has downgraded Russia’s long term foreign currency debt, which is now all at “junk” rating level: Fitch’s rating has fallen from ‘BBB’[3] to ‘C’[4]; S&P Global’s has fallen from ‘BBB-’[5] to ‘CC’[6]; and Moody’s rating has fallen from ‘B3’ to ‘Ca’.[7]
- The Russian economy, and its citizens, have already been substantially hit by the significant sanctions imposed by the UK and its international partners, and Russia faces both a significant hit to the size of its economy and significant inflation. One of the boldest moves in the financial sanctions package has been the sanctions levelled at the Russian Central Bank, which appear to have denied access by Russia to half of its reserves. The energy sanctions already imposed are likely to inflict significant damage on the Russian economy. If energy sanctions and reductions in demand are introduced in line with the statements made by the United States, EU, the UK and others then the impact on Russia’s economy could be catastrophic and long lasting.
- Where there remain elements of the sanctions net around Russia not yet closed, including to allow energy payments and supplies, the Government should consider how to ensure there is minimal leakage.
Guidance, compliance and enforcement
- Witnesses commented on the importance of compliance and the provision of guidance to private sector firms, on which the burden of implementation largely falls.[8] Dr Justine Walker, Head of Global Sanctions and Risk at the Association of Certified AntiMoney Laundering Specialists, told us that she did “not think our compliance is probably very good, because the level we ask people to comply to is so complex”. She did, however, point to investment by banks and global corporates in sanctions training and compliance, noting that “At the board level, in many ways, sanctions compliance is seen as a more critical issue than some of the other wider financial crime elements, because if you get it wrong from the US side in particular, it is very significant.”[9]
- ↑ Financial Times, Russia edges closer to averting default as JPMorgan processes bond payment, 17 March 2022, accessed 21 March 2022
- ↑ Reuters, History of sovereign debt defaults, 15 March 2022, accessed 21 March 2022.
- ↑ Fitch, Ration action commentary: Fitch Affirms Russia at ‘BBB’; Outlook Stable, 3 December 2021, accessed 17 March 2022
- ↑ Fitch, Rating action commentary: Fitch Downgrades Russia to ‘C’, 8 March 2022, accessed on 17 March 2022
- ↑ S&P Global Ratings, Research Update: Russia Foreign Currency Rating Lowered to ‘BB+’ And Put on CreditWatch Negative On Risks Related to Invasion of Ukraine, 26 February 2022, accessed on 2022 and Financial Times, S&P cuts Russia to ‘junk’ as sanctions increase financial risks, 26 February 2022, accessed 17 March 2022
- ↑ S&P Global Ratings, Research Update: Russia Foreign and Local Currency Ratings Lowered To ‘CC’ On High Vulnerability to Debt Nonpayment, Still on Watch Neg, 17 March 2022 and Financial Times, Russian bond interest payments flow through western financial system, 18 March 2022, accessed on 21 March 2022
- ↑ Moody’s, Rating Action: Moody’s downgrades Russia’s ratings to Ca from B3; the outlook is negative, 6 March 2022, accessed on 21 March 2022
- ↑ See for example Mr Keatinge Q9
- ↑ Q92
