White House says Russia is in default as $100 million payment falls due

  • The White House said Thursday that Russia was likely to default on its debts, a sign of its “pariah” status.
  • Russia has $100 million in bond payments due Friday, in the biggest test yet of its ability to get money for investors.
  • The fate of the payments is highly uncertain after the US Treasury closed a key loophole this week.

The White House has said Russia is likely to default on its foreign bonds, a sign of the country’s “pariah” status, with the Kremlin facing a major $100 million test on Friday.

Russia has two bond coupon payments due in dollars and euros on Friday, but the fate of that money is highly uncertain after the U.S. Treasury closed a key loophole this week that allowed money to bypass sanctions and d be paid into investors’ accounts.

The Russian government has so far maintained payments on its foreign currency obligations despite widespread belief that it would default under the weight of sanctions imposed after its invasion of Ukraine.

However, Moscow’s efforts to keep paying its debts became much more complicated this week when the US Treasury ended the sanctions waiver that allowed US investors to receive money from Russian bonds.

The United States now expects the Russian government to default, White House press secretary Karine Jean-Pierre said Thursday.

“Russia is unlikely to meet its obligations and face default in a lasting sign of its pariah status in the global financial system,” she told reporters.

However, Moscow said last week that it had already sent the money to its national settlements repository in a bid to advance the end of the US exemption, which was announced on Tuesday evening.

Still, the money must arrive in full in investors’ accounts, or Russia will likely be deemed in default. If the money does not arrive by Friday, a 30-day grace period will begin during which payment must be made.

Russia is expected to pay $71 million on a dollar-denominated bond and 29 million euros ($31.2 million) on a euro-denominated bond on Friday.

Both bonds are subject to contracts that allow payment in other currencies under certain circumstances. For the bond denominated in euros, this includes payment in Russian rubles.

The White House said it believed the risks to the global economy were low if Russia did not return the money to bondholders and defaulted.

“We expect the impact on the United States and the global economy to be minimal, given that Russia is already financially isolated,” Jean-Pierre said.

Russia has accused the United States of trying to force it into an “artificial” default.

“There are funds, and there is a willingness to pay,” Russian Finance Minister Anton Siluanov said on Wednesday. “This situation is artificially created by a hostile country.”

The Ministry of Finance said it would pay its dollar debts in rubles in the future. However, international banks have said such a move would put Russia in default.

Even so, Russia has already found ways to repay its debt to investors, despite intensifying US sanctions.

Strategists at Russian broker ITI Capital said many Russian bondholders are European entities that can technically still receive payments. That could complicate efforts by U.S. bondholders to officially consider Moscow to have defaulted, they said.

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Elaine R. Knight