Washington ends Russia debt payment exemption
WASHINGTON: The United States will end an exemption allowing Moscow to pay foreign debt held by American investors with funds held in Russia, the US Treasury said on Tuesday, a move that could push Vladimir Putin’s country closer to default.
The escape clause to the drastic financial sanctions imposed on Moscow after it invaded Ukraine in late February, which allowed US banks to receive and process the payments to creditors, ends as of 4.01am GMT yesterday, two days before Russia’s next debt service payment is due.
US Treasury Secretary
Janet Yellen last week hinted at the move announced on Tuesday, saying the exemption was put in place to allow financial institutions to adjust but that it was “time-limited”.
Punishing Western sanctions on Russia have largely severed the country from the international financial system, including blocking Moscow’s ability to access funds held in US banks to pay its foreign creditors.
The latest move scraps the final outlet, which was forcing Mr Putin’s government to drain its war chest of reserves to make payments.
Ms Yellen had signaled the default was the goal, part of President Joe Biden’s efforts to intensify the pressure on Putin as the war rages on.
“Russia is not able right now to borrow in global financial markets, it has no access to capital markets. If Russia is unable to find a legal way to make these payments... they technically default on their debt,” Ms Yellen told reporters last week.
The Russian government has attempted to pay in domestic currency, but many of the bonds do not allow repayment in rubles.
The government still faces a dozen debt service deadlines this year.
The next one, on May 27, is for €100 million (about 3.6 billion baht) in interest on two bonds: one requires payment in dollars, euros, pounds or Swiss francs only; the other can be paid in rubles.
According to reports by Reuters and The Wall Street Journal on Friday, the Russian Finance Ministry transferred funds out of the country early to make the payments and avoid default.
Nearly US$400 million (13.69 billion baht) in interest is due in late June.
After a 15- to 30-day grace period following a missed payment, the country likely would be declared in default.