What to know as fears grow that Russia will default on its debt Russia owes interest payments on two dollar-denominated bonds on Wednesday. If it doesn't pay, the country could go into default.

Fears are growing that Russia will default on its debt. Here's what you need to know

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JUANA SUMMERS, HOST:

Paying off debts is a key part of our financial system. Today, Russia is edging closer to defaulting on its debt. It owes billions in interest rate payments to foreign investors. And there are fears about whether it will make those payments. A default would have major consequences for Russia and perhaps even the global economy. NPR's David Gura joins us now. Hey, David.

DAVID GURA, BYLINE: Hey, Juana.

SUMMERS: So walk us through what's going on here.

GURA: Well, most countries, including Russia, sell bonds to investors and fund managers all over the world. This is a critical way for countries to borrow money, so it's a pretty big deal when one of them defaults on its debt. Now, Russia faced a big deadline today. It owes investors $117 million - interest payments on two Russian bonds that the country has to pay back in dollars. It's important to understand that baked into each of these two bonds is a 30-day grace period, so not paying today doesn't automatically trigger a default. Technically, the country has until April 15, but there's growing pessimism and expectation that even with the grace period, Russia will be unable to make these payments.

Listen to what Kristalina Georgieva said on Sunday on CBS News. She's the head of the International Monetary Fund.

(SOUNDBITE OF TV SHOW, "FACE THE NATION")

KRISTALINA GEORGIEVA: No longer we think of Russian default as improbable event.

GURA: The big ratings agencies - Fitch, Moody's, S&P - used similar language when they downgraded Russia's debt to junk grade. That means they've determined Russia's debt is at a higher risk of default. Keep in mind Russia has not defaulted on its foreign currency debt in more than a century, Juana, going back to the Russian Revolution.

SUMMERS: Wow, since the Russian Revolution. David, and what has Russia said about these payments?

GURA: Well, Russia's finance minister says the country wants to make these payments, but because of sanctions, it can't access dollars it has in reserves overseas. If you remember last month, the U.S. and its allies froze Russia's foreign currency reserves, hundreds of billions of dollars, also other currencies. So the country has a limited amount of dollars at its disposal. Now, Russia has proposed making these payments with rubles, but that's going to be unacceptable to investors who expect to be paid back in dollars. And Fitch says that if Russia does pay in rubles, not dollars, before the end of the grace period, the ratings agency would consider that to be a default. I'll note here the value of the ruble has tumbled since this crisis began. The currency now down more than 20% against the dollar.

SUMMERS: OK. So say Russia does default. Then what happens?

GURA: Russia has more than a dozen other bonds outstanding worth almost $40 billion in total. It would be seen as a serious breach of global financial rules if Russia doesn't make these payments. And countries that have defaulted, including Argentina, have found themselves shut out of global markets. Russia does continue to have access to foreign currency through energy. Yes, the U.S. has banned imports of oil and natural gas from Russia, but all of Europe has not, and China hasn't. India hasn't as well. Nobody knows how long the sanctions will stay in place, but at some point, Russia is going to have to raise more money. Again, governments need to borrow to finance projects and bolster budgets.

Mitu Gulati teaches at the University of Virginia School of Law, and he says that would be another problem for Russia - if it can't find investors to buy its debt.

MITU GULATI: It's hard for me to imagine how they're going to fund basic necessities.

GURA: So a worst-case scenario would be if Russia were to default, it would spill over into other economies. That would raise questions among investors about emerging markets more broadly. We could see investors shy away from them. But I want to be clear here - this is not a scenario most analysts expect. Other emerging markets have not invaded other countries. They're not being intentionally cut off from the global economy. And Russia has been fairly isolated since it annexed Crimea in 2014. So the bottom line here, Juana - what's at risk here is if Russia defaults, the country would become even more of a pariah in the global financial system.

SUMMERS: NPR's David Gura, thanks so much.

GURA: Thank you.

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