Printed on Wed Jul 06 2022 12:02:18 AM

US blocks loophole for Russian debt payments

International desk

The US is cutting off another financial route for Russia and its international debt payments, a move that could push the country closer to default.

The US Treasury Department said it would end a waiver that had allowed US bondholders to accept payments, tightening sanctions imposed over the war in Ukraine.

Russia, which is rich from its oil and gas supplies, has the funds to pay.

It has already signaled plans to contest any declaration of default.

The country has almost $2 billion worth of payments that will be due up to the end of the year on its international bonds.

While the new rules only apply to people in the US, they will make it difficult for Russia to make payments elsewhere given the role of US banks in the global financial system.

The US had already barred Russia from using US banks to transfer payments.

Analysts have said they do not expect major ramifications from the move outside of Russia, with IMF chief Kristalina Georgieva saying in March that exposure to the holdings was "not systemically relevant".

Professor Philip Nichols of the Wharton School at the University of Pennsylvania said it's not clear what Western holders of Russian bonds have done in the weeks since the invasion, whether rushing to offload them or holding on in hopes the situation will eventually normalize.

It would likely trigger a court case, opening up Russia to recovery proceedings from creditors.

Inside Russia, any impact would be felt only over the long term as part of the country's wider economic isolation, Prof Nichols said.

"Russia just has a lot of oil and gas and that translates into a lot of money, but in the long run, this is part of a web of instruments that are designed to make it far, far more difficult for Russia to wage war on its neighbors," he said.

"It's going to be really interesting to see what happens," Prof Nichols said.


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