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WASHINGTON, May 24 (Reuters) – The United States will not extend a key waiver due to expire on Wednesday that allows Russia to pay U.S. bondholders, which could bring Moscow closer to the brink of default as Washington steps up pressure on the country following its invasion of Ukraine.
The US Treasury Department said on its website on Tuesday that it would not extend a license, which will expire at 00:01 a.m. ET (0401 GMT) on Wednesday, allowing Russia to make payments on its sovereign debt to US persons. The waiver allowed Moscow to continue paying interest and principal and avoid defaulting on its public debt.
Russia has nearly $2 billion in payments falling due until the end of the year on its international obligations.
Russia has so far managed to make its international obligation payments despite Western sanctions over the Ukraine conflict and Moscow’s countermeasures, which have complicated the movement of money across borders.
On Friday, Russia rushed forward payments on two international bonds – one euro-denominated and one dollar-denominated – a week ahead of their due date. Read more
The country has $40 billion in international bonds outstanding.
There was some debate over whether or not to extend the license.
US Deputy Treasury Secretary Wally Adeyemo previously said the payments diverted funds from Russia’s war effort in Ukraine and were a “sign of success” for US sanctions policy.
But Treasury Secretary Janet Yellen said last week Washington was unlikely to extend the license. Read more
Although the license only applies to US persons, its lapse will make it very difficult for Russia to make payment to other licensees given the critical role that US financial institutions play in the global financial system and the complexity of these payment processes.
Unlike most default situations, Moscow is not short of cash. Russia’s debt repayment schedules pale in comparison to its oil and gas revenues, which stood at $28 billion in April alone thanks to high energy prices.
Washington and its allies have imposed heavy sanctions on Russia for launching the largest ground war in Europe since World War II.
Moscow calls its nearly three-month-long invasion a “special military operation” to rid Ukraine of fascists, a claim that kyiv and its Western allies are a baseless pretext for unprovoked war.
Russia was previously rated investment grade by rating agencies, but since the Ukraine conflict, major rating agencies have stopped rating the country.
If a country fails to make the bond payments within the predefined timeframes or in the specified currencies, it is considered a default. If the funds do not reach their recipients due to circumstances rather than inability or unwillingness to pay, this could constitute a technical fault. Read more
Russia has a 30-day grace period on both payments due on May 27.
Russia is already barred from international debt markets due to sanctions, but a default would mean it could not regain access to those markets until creditors are fully repaid and all litigation arising from the default be settled.
Other defaults, such as in Argentina, have prompted creditors to seek out physical assets such as a navy ship and the country’s presidential plane.
It could also create obstacles to trade with Russia if countries or companies that would normally do business with Russia have imposed rules on themselves that prevent them from doing business with a defaulting entity.
Reporting by Daphne Psaledakis and Rami Ayyub in Washington and Karin Strohecker in London; Editing by Jane Merriman and Chris Reese
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