By Megan Davies and Alexandra Alper
NEW YORK/WASHINGTON听–听The United States stopped the Russian government on Monday from paying holders of its sovereign debt more than $600 million from reserves held at American banks, in a move meant to ratchet up听辫谤别蝉蝉耻谤别听on听惭辞蝉肠辞飞听and eat into its holdings of听鲍.厂. dollars.
Under sanctions put in place after Russia invaded Ukraine on Feb. 24, foreign currency reserves held by the Russian central bank at听鲍.厂. financial institutions were frozen.
But the Treasury Department had been allowing the Russian government to use those funds to make coupon听辫补测尘别苍迟蝉听on dollar-denominated sovereign debt on a case-by-case basis.
On Monday, as the largest of the听辫补测尘别苍迟蝉听came due, including a $552.4 million principal payment on a maturing听产辞苍诲, the听鲍.厂. government decided to cut off听惭辞蝉肠辞飞‘s access to the frozen funds, according to a听鲍.厂. Treasury spokesperson.
An $84 million coupon payment was also due on Monday on a 2042 sovereign dollar听产辞苍诲.听
The move was meant to force听惭辞蝉肠辞飞听to make the difficult decision of whether it would use dollars that it has access to for听辫补测尘别苍迟蝉听on its debt or for other purposes, including supporting its war effort, the spokesperson said.
Russia faces a historic default if it chooses to not do so.
“Russia must choose between draining remaining valuable dollar reserves or new revenue coming in, or default,” the spokesperson said.
JPMorgan Chase & Co聽JPM.N, which had been processing听辫补测尘别苍迟蝉听as a correspondent bank so far, was stopped by the Treasury, a source familiar with the matter said.
The correspondent bank processes the coupon听辫补测尘别苍迟蝉听from Russia, sending them to the payment agent to distribute to overseas听产辞苍诲holders.
The country has a 30-day grace period to make the payment, the source said.
DEFAULT WORRIES
The increased听辫谤别蝉蝉耻谤别听comes as the United States and Europe are planning new sanctions this week to punish听惭辞蝉肠辞飞听over civilian killings in Ukraine.听
Russia calls its move in Ukraine a “special military operation”. Ukraine and the West say the invasion was illegal and unjustified. Searing images of a mass grave and the bound bodies of people shot at close range drew an international outcry on Monday.听
Russia, which has a total of 15 international听产辞苍诲s outstanding with a face value of around $40 billion, has managed to avoid defaulting on its international debt so far despite unprecedented Western sanctions. But the task is getting harder.听
Russia was last allowed to make a $447 million coupon payment on a 2030 sovereign dollar听产辞苍诲, due last Thursday, at least the fifth such payment since the war began.
If Russia fails to make any of its upcoming听产辞苍诲聽辫补测尘别苍迟蝉听within their pre-defined timeframes, or pays in roubles where dollars, euros or another currency is specified, it will constitute a default.听
While Russia is not able to access international borrowing markets due to the West’s sanctions, a default would prohibit it from accessing those markets until creditors are fully repaid and any legal cases stemming from the default are settled.听 – Reuters
