By suspending bonds interest payments, Russia has increased the possibility of default.
According to Reuters and the Guardian, a spokesman for the U.S. Treasury Department and a source familiar with the issue said in an interview on the 5th (local time) that Russia’s recent suspension of interest payments on government bonds is approaching a historic default.
Russia had no access to $630 billion worth of foreign exchange reserves in the United States after the invasion of Ukraine, so it had to have permission from the United States to pay interest on dollar bonds.
The $120 million interest on dollar-denominated government bonds, which expired on the 16th of last month, was paid with the permission of the U.S. and fortunately avoided default.
The interest to be paid this time was related to dollar bonds due this year and 2042. The source, however, said JP Morgan had not received approval from the U.S. Treasury Department for interest payments.
Banks abroad usually process interest payments issued in Russia and send them to payment agencies to distribute them to overseas bondholders.
Previously, interest payments on government bonds were underway, but a U.S. Treasury Department spokesman said interest payments were no longer allowed.
The spokesman said, “Today (5th) is the deadline for Russia to repay another debt.”
He said, “The U.S. Treasury Department will not allow the Russian government to repay interest on dollar bonds from the accounts of U.S. financial institutions.”
Accordingly, Russia has to choose whether to use up the remaining dollar, create and process new revenues, or default.
However, dollar bonds have a grace period of 30 days from the maturity date of the initial interest payment.
Russia holds a total of 15 international bonds with a par value of about $40 billion. Until now, despite unprecedented Western sanctions, it has managed to avoid default.
Earlier, Russia said it could not pay debts due to sanctions that have funds but cannot access foreign exchange reserves, adding that it would pay back in rubles.
However, if Russia fails to pay interest on bonds within the scheduled period, or if the dollar, euro, or other currency pays specified debts in rubles, it is considered a default.
If the Russian government declares a default this time, it will be the first time foreign currency bonds have experienced this since the Bolshevik Revolution in 1917. Earlier in 1998, Russia declared a default on domestic debt.
