Will Fiscal Sanctions Stop Putin?

It came in more silently than a screaming bomb or shell; it left no dead or wounded. But, it could prove to be the one “missile” that can change Russian President Vladimir Putin’s present mindset on the right of the people of an independent country to choose their leaders.

Fitch Ratings, a company that keeps tight watch on the borrowing and spending habits of public bodies and rates them at specified times throughout the year, fired the shot.

On March 8, it released its latest findings on Russia’s Long-Term Foreign Currency program, bluntly stating: “Fitch Ratings has downgraded Russia’s default rating to ‘C’ from ‘B.’” Expertise in high finance is not required to explain what ‘C’ means on any report card. It is a red light flashing. In the international markets where governments go to borrow money, it is a warning that there will be a critical increase in the cost of borrowing due to poor repayment of previous loans.

To get the best borrowing rates, a Triple-A rating is the coveted goal. Dropping to ‘B’ isn’t desirable but can be handled. ‘C’ is getting close to the edge of the cliff where financial disaster looms.

Fitch acknowledges such rating reviews are “subject to restrictions and must take place according to a published schedule – except where it’s necessary for CRAs (the examiners) to deviate from this order to comply with their legal obligations.”

“Fitch interprets this provision as allowing it to publish a rating review in situations where there is material change in the credit worthiness of the issuer that we believe makes it inappropriate for us to wait until the next scheduled review date to update the rating.” The extra emphasis is mine with two key phrases (change in credit worthiness) and (makes it inappropriate to wait) indicating the red light is flashing at high tempo.

Fitch needs no emphasis boost from me when the rating bluntly states: “The ‘C’ rating reflects Fitch’s view that a sovereign default is imminent.” A master’s degree in accounting is not required to understand that “sovereign default is imminent” means that recent sanctions make it hard for Putin to pay his bills.

In the gentle language of the accountant, Fitch says that since early March, “developments … have, in our view, further undermined Russia’s willingness to service government debt.”

Fitch kindly sums everything up with terse statements even Putin and journalists should understand. Under a sub-headline: “Factors that could lead to negative rating: Failure to fulfill commercial debt payment within stipulated grace periods.”

And a final advisory headed: “Factors That Could Lead to Positive Rating Action/Upgrade: Improved confidence in Russia’s willingness to repay debt, for example, due to implementation of policy that is consistent with its continuing servicing of debt obligations alongside expectations there will be capacity to execute debt payments.”

Read it again. Carefully. “Improved confidence in Russia’s willingness to repay debt …” Can that mean some of the weapons of war being used in Ukraine haven’t been paid for? Weapons like the thermobaric weapon – the “vacuum bomb” spotted among the armoured columns featured daily on television?

It’s the huge 24-rocket launcher mounted on tank tracks for mobility. It is sometimes called the “aerosol bomb” because it’s a two-stage explosive. The Guardian tells us: “The first stage distributes an aerosol made up of very fine material – from a carbon-based fuel to tiny metal particles. A second charge ignites that cloud, creating a fireball, a huge shock wave and a vacuum as it sucks up all surrounding oxygen … The blast wave can last for significantly longer than a conventional explosive and is capable of vaporizing human bodies.”

While it is not clear if the weapon has been deployed in Ukraine, Dr. Marcus Hellyer, senior analyst at Australian Strategic Policy, says the weapon is “pretty standard in terms of Russian tactics. It is not illegal even though its effects can be horrific because of the effect of creating a vacuum and sucking the air out of the lungs of defenders.”

And its use in Ukraine and anywhere else in the world is in the hands of a reputed billionaire who has already let it be known that he controls some nuclear weapons and the means to deliver them.

Maybe if fiscal sanctions can bring him into line, we change our clocks this weekend and settle down for a quiet summer.

One comment

  1. Russia’s bad credit rating is not likely uppermost in Putin’s mind these days. He probably can get emergency loans from China for weapons and such.

    But the sanctions are hurting his rich friends and devastating the common people. It is these two elements that are key to his political survival.

    May it not last long.

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