Agencies-Gaza post
US ready to block Russia’s debt payments
The US could block Russia’s ability to pay its sovereign debt until the end of May, Bloomberg reported on Tuesday.
According to the publication, the US Treasury Department’s Office of Foreign Assets Control is poised to scrap a temporary waiver on Russia’s debt payments once it expires on May 25 in a bid to increase financial pressure on Moscow.
The exemption was given after Washington set sanctions on Russia in response to the beginning of a military operation in neighboring Ukraine, which drew serious criticism in the US. This permitted Moscow to make coupon payments even when almost all other financial dealings were banned. Removing the exemption would effectively block Russian payments to US investors.
Moscow’s inability to meet its debt obligations could be viewed as a default, analysts say, albeit “artificially” on the one hand, because the country remains financially solvent, but would be prevented from doing so by sanctions.
Russia has so far made all scheduled payments to creditors, and administrators have frequently said it is prepared to continue doing so in the future.
However, it is currently unclear how charges can continue to be made if the US exemption is allowed to expire.
According to Bloomberg sources, some Treasury officials believe Russia should be allowed to pay its debt as doing so would drain the country’s foreign exchange resources, forcing it to divert funds it could otherwise spend on the ongoing military operation in Ukraine. But analysts say Russia’s debt payments are a drop in the bucket compared to its profits from exports of oil, gas, and other commodities. According to Statista analysts, as of December 2021, Russia’s national debt was $65 billion, while the value of its exports was nearly $276 billion.
Russia will next make a debt payment on May 27, which will be on foreign bonds maturing in 2026 and 2036. In total, the country is facing foreign currency bond payments of more than $490 million by the end of June.
Carlos de Sousa, an investor at Vontobel Asset Management in Zurich, told Bloomberg that Russia is very likely to default on its commitments, but that would hardly be a significant development.
“It’s still our baseline scenario of a default… I don’t know why the US would renew the spin-off. Russian national debt is very low, they still have resources and some money flowing in. Therefore, it is not too burdensome for them to continue to service the debt. The Russian government just wants to protect its reputation,” he explained.
Russia recently accused the US of trying to create an artificial default by blocking payments because the country is willing and has the resources to pay off its debt. The Kremlin has described the situation as insolvency of the Western financial system because it has failed to meet its financial obligations to Russia.
Source: here
