Russia makes last-minute bond payment to avoid historic default

Russia avoided a debt default on Friday by making a last-minute payment using its dollar reserves located outside the country, U.S. Treasury officials said.

The amount of the payment was not disclosed, but earlier this month the Russian Finance Ministry said it had attempted to make a payment of US$649m (£516m) due on April 6 for two bonds to an unnamed US bank – previously reported as JPMorgan Chase.

At this time, the increased sanctions imposed for Russia’s invasion of Ukraine prevented the payment from being accepted, so Moscow attempted to effect payment of the debt in rubles.

The Kremlin, which has repeatedly said it is financially able and willing to continue paying its debts, argued that extraordinary events gave it the legal basis to pay in rubles, instead of dollars or euros.

Investors and rating agencies, however, disagreed and did not expect Russia to be able to convert rubles to dollars before a 30-day grace period expired. next week, suggesting that Moscow was headed for a historic default on its debt.

Russia has not defaulted on its foreign debts since the Bolshevik Revolution of 1917, when the collapse of the Russian Empire led to the creation of the Soviet Union.

The governing body of credit default swamps — insurance contracts designed to protect against default — had already ruled that Russia was in default.

Treasury officials, who declined to be named because they were not authorized to speak officially, said Russia had tapped into its foreign exchange reserves currently outside the country to make the payment for friday.

Sanctions on Russia over its war in Ukraine have forced the country to default on its debt (AP)

Since the United States sanctioned the Central Bank of Russia at the start of the conflict, Russia had only the option of using either new revenues from activities such as oil and gas sales, or reserves of existing foreign currency located outside the country.

The United States has tried to force Russia to use its foreign currency reserves – or any revenue from oil and gas sales – to deplete the country’s financial resources.

The Russian Finance Ministry said it made the payments at a London branch of Citigroup. A Citi spokeswoman declined to say whether the bank processed the transaction.

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Elaine R. Knight