From the Bolsheviks to Putin: the history of Russia’s debt defaults


In 1918, Soviet revolutionary Leon Trotsky told Western creditors horrified by the Bolsheviks’ repudiation of Russia’s foreign debt: “Gentlemen, you were warned”.

Trotsky reminded them that the rejection of the tsarist-era debt had been a key trigger for the failed uprising of 1905. More than a century later, Russia is on the verge of another foreign debt default, but this time without warning..

Few expected that the Kremlin’s invasion of Ukraine would elicit such a fierce response from the West, one that has virtually cut Russia off from the world’s financial and payment systems.

Here are the main developments in Russian debt in the last century:


Just before the 1917 revolution, Russia was the world’s largest net international debtor, having borrowed heavily to finance the country’s industrialization and railways.

But seeing the tsarist industrialization drive as detrimental to the working class, the Bolsheviks repudiated all foreign debt assumed by the country.

“They said ‘we’re not going to pay and even if we could, we wouldn’t pay.’ And that was a political statement,” said Hassan Malik, senior sovereign debt analyst at Loomis Sayles and author of the book “Bankers and Bolsheviks: International Finance and the Russian Revolution”.

Despite Trotsky’s reminder, the default shocked the world, especially Francewhose banks and citizens suffered huge losses.

Leon Trotsky
Leon Trotsky

“Investors didn’t take it seriously because they thought it would be very damaging to the country,” said Malik, who estimated that the debt then had worth at least $500 billion in 2020 pricesand possibly more.

It took until the mid-1980s for Moscow to recognize part of that debt.


After the disintegration of the Union of Soviet Socialist Republics (USSR) in 1991, Russia defaulted on part of the foreign debt it inherited from the former Soviet states.

Andrey Vavilov, Russia’s deputy finance minister from 1994 to 1997, stated that the Russian Federation had around $105 billion in debt inherited from the Soviet era at the end of 1992, and that its own debt amounted to $2.8 billion. .

By accepting the inherited debt, the Paris Club recognized Russia as a creditor nation, Vavilov wrote in his book “The Russian Public Debt and Financial Meltdowns”. And because Russia agreed with the group of nations to restructure $28 billion of debt in 1996, it was allowed to carry over major debt payments from the Soviet era into the next decade.

But with a financial crisis just around the corner, it would take until 2017 to pay off communist-era arrears.


In 1997, the oil price crash sharply reduced revenue from Russian exports. Foreign debt, which stood at around 50% of Russia’s GDP in 1995, had risen by 1998 to 77%, according to Vavilov, who blamed the large loans from the IMF and the World Bank to have contributed to the accumulation.

Russia collected very little tax revenue and relied on short-term Treasury bills, known by the acronym GKO, to cover expenses. But she was finding it harder and harder to refinance them and she was soon forced to spend ever-increasing amounts to defend the ruble.

“The more the government insisted that it would defend the currency and pay its debts, the more investors concluded that it was time to sell,” says Chris Miller in his book “Putinomics: Power and Money in Resurgent Russia”.

Headquarters of the Central Bank of Russia in Moscow (Reuters)
Headquarters of the Central Bank of Russia in Moscow (Reuters) (MAXIM SHEMETOV /)

A month before the default, the IMF prepared an aid package of 22.6 billion dollars, but “the market expected the announcement of an additional 20 billion,” wrote Martin Gilman, the IMF representative in Moscow at the time, in his book “No Precedent, No Plan: Inside Russia’s 1998 Default”.

On August 17, 1998, Russia threw in the towel, devaluing the ruble, announcing that it could no longer pay the debt in rubles, and introducing a three-month moratorium on part of the foreign debt..

Russian banks that had invested heavily in Treasury bills and had a large exposure to foreign currencies soon collapsed.


During the 1998 crisis, Moscow made sure to keep paying the Eurobonds. Now you have a lot of cash, but you can’t avoid defaulting.

To circumvent Western sanctions, the Kremlin suggests foreign creditors open Russian bank accounts to receive payments in currencies other than the dollar.

Non-US investors could, in theory, agree, but US bondholders cannot, after a US Treasury license allowing them to accept Russian payments expired in May..

Miller, author of “Putinomics”, he said Russia will fight tooth and nail to avoid a Eurobond default.

Vladimir Putin (Sputnik/Reuters)
Vladimir Putin (Sputnik/Reuters) (SPUTNIK/)

“The heads of the Russian Central Bank and Finance Ministry have built their careers on re-stabilizing Russia as a creditor that can be trusted in international markets,” he said.

“Their identity is to make sure that a default doesn’t happen again.”

(With information from Reuters/edited by Sujata Rao and Nick Macfie; translation by Darío Fernández)


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