Russia appeared to avoid defaulting on its external debt by tapping into its scarce dollar reserves. But Moscow’s debt drama is far from over.

Russia’s Finance Ministry has dropped its proposal to use rubles instead of dollars to make late payments on two government bonds, saying on Friday it had transferred the money to an account at Citigroup: 564.4 million for a bond due in 2022 and $84.4 million for another due in 2042. A 30-day grace period to make overdue payments was due to expire on Wednesday.

The government had claimed that US sanctions freezing its huge currency reserves held overseas meant it could not pay and Russia was not responsible for any defaults, the first on foreign debt since the Bolshevik Revolution of 1917.

Even though Russia turns out to have made the most recent payments, more are coming due. Additionally, the United States’ authorization for US bondholders to accept payment on Russian bonds is set to expire on May 25, so even if Russia tries to pay, investors could not legally take the money.

Here are some of the Russian debt issues:

WHY ARE PEOPLE TALKING ABOUT A POSSIBLE RUSSIAN DEFECT?

Rating agencies have said that if the bonds specify payment in dollars, then paying in rubles is equivalent to defaulting on payment as promised. One of the reasons Russia would want to pay in rubles instead of its foreign currency reserves is that much of it has been frozen abroad. He made Friday’s payment by tapping into the scarce internal reserves that the sanctions could not touch.

Russia has not permanently avoided default unless money is funneled from Citigroup through the banking system to bondholders by Wednesday’s deadline.

“Bondholders don’t get paid until Citigroup processes the payments” and passes them on to clearinghouses that distribute payments to bondholders, said Jay S. Auslander, one of the top sovereign debt lawyers at Wilk Auslander in New York.

Banks are extremely cautious about any dealings with Russia and may want to check with US and UK authorities first. But “I think it’s likely that the funds will reach the bondholders, in which case they won’t default this time around,” Auslander said.

HOW MUCH OWS RUSSIA?

About $40 billion in foreign bonds, about half to foreigners. Prior to the start of the war, Russia had about $640 billion in foreign exchange and gold reserves, much of which was held overseas and is now frozen.

HOW TO KNOW IF A COUNTRY IS IN DEFAULT?

Rating agencies can lower the default rating or a court can decide the matter. Bondholders who have credit default swaps – contracts that act as default insurance policies – can ask a committee of financial firm representatives to decide whether a the debt must trigger a payment, which is still not a formal declaration of default.

The Credit Default Determination Committee — an industry group of 14 banks and investors that determines whether or not to pay on those swaps — said Friday it “continues to monitor the situation” after Russia’s payment. They were to meet on Tuesday.

WHAT CAN INVESTORS DO?

The formal way to declare a default is if 25% or more of bondholders say they haven’t received their money. Once that happens, the provisions state that all of Russia’s other foreign bonds are also in default, and bondholders could then seek a court order to demand payment.

Under normal circumstances, investors and the failing government typically negotiate a settlement in which bondholders receive new bonds that are worth less but give them at least partial compensation.

But the sanctions prevent relations with the Russian Ministry of Finance. And no one knows when the war will end or how many defaulted bonds might be worth.

In that case, declaring default and suing “might not be the wisest choice,” Auslander said. “You cannot negotiate with Russia right now. You’re wading through a world where penalties are constantly changing, where there are a lot of unknowns. So you can see creditors deciding at this point to keep their intentions close to their vest and hang in there for now.

Popular sentiment is a consideration for investors, especially those who bought bonds at knockdown prices hoping to profit from a settlement.

“Right now might not be the right time to rush in and show you’re profiting from distressed debt in Russian bonds,” Auslander said. “Will that time come in the future? I suspect that will be the case.

Once a country defaults, it may be cut off from borrowing in the bond market until the default is resolved and investors regain confidence in the government’s ability and willingness to pay. But Russia has already been cut off from Western capital markets, so any return to borrowing is far from the case anyway.

The Kremlin can still borrow rubles at home, where it relies mainly on Russian banks to buy its bonds.

WHAT IMPACT COULD A RUSSIAN DEFECT HAVE?

The country is already suffering a substantial economic impact from Western sanctions, which have scared off foreign businesses and disrupted trade and financial ties with the rest of the world. The defect would be one more symptom of this isolation and this disturbance.

Investment analysts cautiously believe that a Russian default would not have the same impact on global financial markets and institutions as an earlier default in 1998. At the time, Russia’s default on national ruble bonds led the US government to step in and call on the banks. to bail out Long-Term Capital Management, a large US hedge fund whose collapse, it was feared, could have shaken the entire financial and banking system.

Bondholders – for example, funds that invest in emerging market bonds – could suffer heavy losses. Russia, however, played only a small role in emerging market bond indices, limiting losses for fund investors.

While war itself has devastating consequences in terms of human suffering and rising food and energy prices around the world, a default on government bonds would “certainly not be systemically relevant”, said Kristalina Georgieva, director of the International Monetary Fund.

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