Mario Cordoni, Founder and CEO of CFE Finance Group, discusses potential Russian default in an Il Sole 24 Ore Interview

Never say default. An (almost) indelible machine, the nightmare of all finance ministers worldwide. A mark of infamy: exclusion from the capital markets.

Yet, looking at the last 25 years of economic and financial history, the long series of defaults has caused difficulties for the defaulting governments, but the politicians responsible for the crashes have largely emerged unscathed from the deadlock. This is confirmed by the cases of Russia (1998), Argentina (2001), Ecuador (2008), and Venezuela (2017). The political class responsible for the crash remains in power, and the reason is simple: opposing the financial establishment is a populist act that garners support from large segments of the population. “I will not pay the International Monetary Fund,” said an Argentine congressman clearly. “This statement, proclaimed on TV, helps me gain votes.”

Putin’s Russia is expected, according to most analysts, to face difficult weeks ahead: Ukrainian resistance and financial resilience. Today’s first crucial deadline is not only for Ukrainian resistance but also for debt obligations: Moscow should pay $107 million tied to two bonds. The second, more significant deadline, for $2 billion, is April 4, 2022. Today, March 16, nothing will happen, but on April 15, when the grace period ends, markets will feel the first effects.

It should be remembered that Russia defaulted in 1998. “The current scenario is pessimistic,” says Simon Waver, head of Emerging Markets at Morgan Stanley, drawing analogies with the Venezuelan case. Mario Cordoni, CEO of CFE Finance Group, does not indulge in optimism, offering some distinctions: “Russia in 1998 received aid from the London Club, the Paris Club, and the IMF; the climate was favorable then, just a few years after the end of the Soviet Union. Today, the climate is much more hostile.” A default would not be met with the same international support today.

The case of Argentina is entirely different, where the 2001 default, worth $130 billion, led to street protests and 37 deaths. President Fernando de la Rua was forced to leave the Casa Rosada by helicopter. The default, on bonds issued in New York in dollars, euros, and yen, caused serious “collateral effects.” Over 450,000 Italian savers were defrauded and only recovered their savings years later. “The two debt restructurings, one in 2005 and the other in 2020, shook the markets,” explains Enzo Farulla, an analyst and former Raymond James Latin America expert, “but Argentina’s populist Peronism was never shaken.” The Argentine political class persisted and withstood the financial tsunami.

The Venezuelan default shares some similarities with Russia’s under Putin. President Nicolás Maduro remains at the helm. Meanwhile, in Moscow, many uncertainties remain: a Financial Times article by Tommy Stubbington and Robin Wigglesworth, regarding today’s deadline, asks, “If Russia pays in rubles, does it default?”