According to Bloomberg News, the Biden government is planning to entirely block Russia’s ability to pay up to the US bondholders once a deadline is expiring next week, which is a move that might cause Moscow to default on debt payments.
The plan to block debt payment
The Treasury Department’s Office of Foreign Assets Control is anticipated to allow a temporary exemption lapse when it is said to expire on May 25th, as per individuals that are familiar with the matter. The waiver was issued after levying sanctions on Russia by the United States over the Ukrainian invasion in February, which has given Moscow ample room to pay up coupons, thereby helping it avoid default on government debt.
The conclusion of the carve-out is the final straw in the saga of Russian debt after approximately three months of the Ukrainian war. It has managed to pay up all its debt payments to the creditors till now, negotiating through a few sanction tangles that closed a few avenues for it.
It also includes an escape of 11 hours at the beginning of this month, when payments were blocked, but Moscow could eventually make the payments by tapping into its dollar reserves. However, it is still not clear how it will be able to sidestep the US loophole.
There were some private arguments by a few treasury officials that allowing Russia to pay up their debts would siphon out their coffers and redirect the resources that would have been used for military and weapons in Ukraine. However, the administration has decided against extending the waiver as a means of maintaining financial pressure on Moscow, as stated by the people.
However, as revealed by another individual familiar with the matter, the Treasury has made no final decision.
In the end, any exertion on Russian finances for making payments to the lenders will only dwarf the country’s earnings that it has been earning from the export of various commodities, oil, and gas.
Overall, Russia is slated to shell out as much as $490 million in foreign currency bond payments that it must make to the creditors by June end.
According to Matthew Vogel, a portfolio manager based in London and head of sovereign research associated with FIM Partners, it is an exciting scenario wherein Moscow will want to make payments to become debt free but will not be allowed to make the debt payments.
According to a compilation by Bloomberg, the following is a table that depicts the upcoming list of bond payments.
