Russia closer to debt default as U.S. prepares to block bond payments

this Biden The government is planning to block Russian bond payments to U.S. investors, a move that could bring Moscow closer than ever to a historic debt default.

Russia has so far managed to repay its foreign debt despite a series of financial sanctions imposed by the United States and its European allies against Moscow. Invade Ukraine.

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That could change as the Treasury Department’s Office of Foreign Assets Control reportedly considers letting Russia’s temporary waiver of continuing debt repayments lapse. The waiver, which expires on May 25, gave Moscow room to pay coupons, helping it avoid a historic default, according to Bloomberg, which first reported the news.

Moscow, Russia, Monday, February 28, 2022, the Russian flag above the headquarters of the Russian Central Bank Rossi Bank. (Photographer: Andrey Rudakov/Bloomberg via Getty Images/Getty Images)

The Treasury Department did not immediately respond to FOX Business’ request for comment.

Russia’s bond payments due on May 27 and June 24 total about $500 million. According to Bloomberg, the terms of its bond allow some of it to be paid in currencies other than the U.S. dollar.

Russian Foreign Minister Anton Siluanov reiterated this week that Russia has no plans to default on the nearly $20 billion in sovereign debt it owes foreign investors, and promised to pay it in rubles if transfers are blocked, Russian state media reported. Siluanov had previously said Moscow would take legal action if its payments were blocked.

“We will file a lawsuit because we have taken all necessary actions so that investors receive their payments,” Siluanov told pro-Kremlin Izvestia in April. “We will present our proof of payment to the court to confirm our efforts to pay in rubles, as if we paid in foreign currency. It will not be an easy process.”

It is unclear who Russia will prosecute.

Bloomberg reported that Treasury officials have argued privately that allowing Russia to pay its debts would further drain its resources and force it to reallocate funds that would have been used for Ukrainian weapons and military operations. The White House also wants to continue to exert financial pressure on Russia.

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Russian President Vladimir Putin holds a video conference with young award-winning cultural professionals in Moscow, Russia, Friday, March 25, 2022. (Mikhail Klimentyev, Sputnik, Kremlin pool photo via AP, File/AP Photo)

U.S. Treasury Secretary Janet Yellen said last week that officials were still studying the economic consequences of allowing Russia to default.

“That’s something we’re actively looking at right now,” Yellen told a Senate Banking Committee hearing. “We want to make sure we understand the potential consequences and spillovers of allowing the license to expire.”

After the Feb. 24 invasion of Ukraine, Western allies imposed tough economic penalties on Russia, including cutting off a key part of Russia’s central bank and preventing it from selling dollars, euros and other foreign currencies from some $630 billion in reserves; blocking some Financial institutions use the Swift messaging system to make international payments; and sanction hundreds of Russian lawmakers and elites close to President Vladimir Putin.

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On top of that, after the invasion began, hundreds of Western companies – including Coca-Cola, McDonald’s and Goldman Sachs – began cutting ties with Moscow as they faced intense pressure from investors and consumers. That pace accelerated as Ukraine’s endless fighting unleashed a massive humanitarian crisis.

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