US considers forcing Russian debt default

THE United States is “actively examining” new sanctions that would force Russia to default on its foreign debts, Janet Yellen, the Treasury Secretary, has said.

The Office for Foreign Asset Control (OFAC) is mulling dropping an exemption that has allowed Moscow to keep making payments on its international bonds and avoid default.

The Kremlin is set to make several more payments on May 27. The temporary exemption granted by the OFAC will lapse two days before, however, meaning Russia may automatically default unless it is extended by the US.

“We want to make sure that we understand what the potential consequences and spillovers would be of allowing the licence to expire. And we have not yet made a decision,” Ms Yellen told the Senate committee on banking yesterday.

Russia narrowly swerved its first default in a century last week after tapping its limited foreign currency reverses to make $650m (£527m) of overdue payments across two bonds.

Around half of Vladimir Putin’s $640bn overseas currency war chest was frozen amid Western sanctions at the start of the war, meaning Moscow has a limited pool to draw from in order to make payment to lenders.

Extending the exemption would likely mean Western bondholders continue to receive payments but a default could have long-lasting consequences for Russia’s ability to tap foreign markets for capital.

Ms Yellen, who formerly chaired the Federal Reserve, said an announcement would be made “shortly”.

If it defaults, Russia is expected to try to claim the move was engineered by the West and was not a reflection of its conduct as a borrower.