US tries to force Russia to default

The U.S. Treasury Department announced Tuesday it would not extend the sanctions waiver that allowed Russia to make payments of sovereign debt to Americans, a move officials previously said would cause Moscow to default on its debt obligations technically not up to par.

The general permit, which expires on Wednesday at 12:01 p.m., will not be extended, a note Posted on the Treasury website said. It was a widely anticipated move, reported as likely by several US media outlets last week and all but confirmed by Treasury Secretary Janet Yellen.

Washington had frozen Russian accounts because of the conflict in Ukraine but issued debt relief because Deputy Treasury Secretary Wally Adeyemo argued such payments would divert funds from the military. Moscow’s debt settlement provided a “Sign of Success” for the US sanctions policy, Adeyemo had argued.

Russia also awaited the move after the Treasury announced last Friday that it had made early payments – totaling $99.25 million – on two outstanding Eurobonds due May 26. That leaves Moscow with $2 billion in external bond payments due before the end of 2022.

As of April 1, Russia had external government debt worth $57.143 billion. It also has plenty of money to maintain, with oil and gas revenues totaling $28 billion in April alone, according to Reuters. The US move aims to trap Moscow “technical error”, Damage to Russia’s reputation on the international financial markets.

“Russia is able to repay any of its obligations in any currency as long as no artificial problems arise,” so the US obstacles “Will not in any way harm the actual financial reputation of our country,” Former Russian President and current Security Council Deputy Chairman Dmitry Medvedev said last week. “Everyone understands that this is a political failure, not a financial one.”

If the US technically impedes Russian payments, the courts should consider it either a creditor’s fault or force majeure, Medvedev added. That was the position of Russia’s Treasury Ministry, which said if the US doesn’t extend the waiver, investors should seek judicial remedy from states that do “Create payment obstacles illegally.”

Finance Minister Anton Siluanov has repeatedly said that Moscow can prove in court that it did everything it could to pay off the debt. Investors holding Russian bonds will also be able to accept payments in rubles and convert them into other currencies once Western governments unblock frozen Russian accounts, the ministry said added.

Medvedev also said Russia was ready to pay the debt in rubles, but noted it could have a choice “Not paying at all and using the unspent money for the very purposes that these senile Americans aren’t going to like very much.”