Foreigners owe billions of dollars. This recalls the 1998 Moscow default that caused financial chaos worldwide.

Fitch, a rating agency, said Wednesday that Russia had failed to pay a March 2 installment to foreign investors. This was due to Russia investing in emerging market bonds. This set off a 30-day grace time before Russia would officially default.

An overview of possible outcomes from a Russian default

WHY DO PEOPLE SAY RUSSIA IS LIKELY to DEFAULT?

Russia will face another interest payment on Wednesday for $117 million, which is due on two dollars-denominated bonds.

Due to the conflict in Ukraine, Western sanctions have placed restrictions on banks' financial transactions with Russia and have also frozen large amounts of the government’s foreign currency reserves. Anton Siluanov, Finance Minister, stated that the government had issued instructions for banks to pay the coupons using dollars. However, he added that if they are unable to due to sanctions, payment would be made with rubles. Russia will be in default after a grace period of 30 days.

Russia claims it has the money but can't pay due to the sanctions that have placed restrictions on banks and frozen large amounts of its foreign currency reserves. This move is in line with the efforts to limit the outflow foreign-currency reserve that has become more scarce due to sanctions.

According to RT, a Kremlin-funded media outlet, Siluanov said Wednesday that there are risks that the payment won't reach investors. According to the U.S. Treasury Department's website, sanctions allow Russia to continue making debt payments.

Russia's credit rating has been downgraded by ratings agencies to "junk" or below investment grade.

What DOES THE FINE PRINT TELL YOU?

Certain Russian bonds allow payment in rubles, but only under certain conditions. These bonds do not allow for payment in rubles. The current exchange rate has plummeted, so investors will get less money to determine the ruble amount.

Fitch stated that payment in local currency for the bonds in question would constitute a sovereign default after a 30-day grace period.

Russia would also be in default of payments to foreigners for ruble-denominated bonds due March 2, after a similar grace period. These payments were made to a state depositary account, but they were not transferred to foreign investors due to restrictions by the Russian central bank.

The ratings agency stated that default will be deemed if the payment is not made within 30 days.

Things could get complicated even for dollar bonds that allow ruble payment.

Clay Lowery, executive vice-president at the International Institute of Finance, a group of financial institutions, stated that "Rubles aren't worthless but they're declining rapidly." It could be a legal matter: Were these unusual circumstances caused by Russia's invasion of Ukraine? This could be resolved in court.

HOW DO YOU KNOW IF A COUNTRY IS IN DEFAULT?

Rating agencies may lower the rating to default. A court can also decide the issue.

Bondholders with credit default swaps, derivatives that act as insurance policies against default, can ask a "determinations panel" of representatives from financial firms to determine if a failure to repay should result in a payout. This is not a formal declaration.

It can be complicated. Lowery, IIF's spokesperson, said that there will be many lawyers involved.

What would be the impact of a Russian default?

Analysts are cautiously assuming that a Russia default will not have the same impact on global financial markets or institutions as the 1998 default. Russia's default in ruble bonds was a result of an Asian financial crisis.

The U.S. government was forced to intervene and help banks bail out Long-Term Capital Management. This large U.S. hedge-fund collapsed, it was feared could threaten the stability of the financial and banking systems.

However, it's difficult to predict the future 100% because each sovereign default is unique and global effects will only be visible once it happens," Daniel Lenz from DK Bank Frankfurt, Germany, who heads euro rates strategy. "A Russian default wouldn't be a surprise to the market. ... You would already see the effects of large shock waves if there were. However, this doesn't necessarily mean that smaller sectors won't face significant problems."

The impact on Russia may be diminished by foreign investors and companies who have reduced or avoided Russian business dealings since the earlier round of sanctions that was imposed in 2014, both by the United States and the European Union, in response to Russia’s unrecognized annexe of the Crimea peninsula.

Kristalina Georgieva (head of the International Monetary Fund) stated that although the war has severe consequences in terms human suffering as well as wide-ranging economic impacts in terms higher electricity and food costs, a default would not be "definitely relevant" in terms risk for banks around the globe.

The bonds holders could suffer serious losses. According to Moody's current rating, creditors could suffer losses of 35%-65% on their investments if there's default.

WHAT HAPPENS IF A COUNTRY FAILS?

Investors and defaulting governments often negotiate a settlement where bondholders get new bonds with lower values but at least partial compensation. With the ongoing war and Western sanctions preventing many deals with Russia, its banks, and companies, it's difficult to imagine how this could happen.

Creditors can sue in certain cases. Russian bonds may have clauses that allow a majority creditor to reach a settlement, and then force the settlement on the remainder, thereby avoiding lawsuits from minority creditors.

A country can be stopped from borrowing on the bond market if it defaults. Investors will then have confidence in its ability to repay and the country's willingness to make payments. Russia's government is able to borrow rubles domestically, but it mainly relies on Russian banks for its bonds.

Russia already feels the severe economic consequences of the sanctions. These have caused the ruble to plummet and broken financial and trade ties with the rest.

The default would also be a sign of Moscow's greater political and financial isolation since its invasion of Ukraine.