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U.S. Pushes Russia to the Brink of Default

Rogue Valley

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U.S. Pushes Russia to the Brink of Default

iu

4.5.22
The United States is pushing Russia to the brink of a potential sovereign debt default by preventing the country from paying holders of that debt funds due on Monday. The U.S. stopped Russia paying its bondholders more than $600 million on Monday from reserves the country holds in U.S.-based banks, potentially forcing the Kremlin to use its other dollar reserves to pay down the debt. If Russia does not make debt repayments using the dollars its government has access to, the country risks a sovereign debt default. The U.S. move comes amid the Russian invasion of Ukraine which began on February 24 and has now lasted more than month, as Ukrainian forces continue to put up fierce resistance. "Russia must choose between draining remaining valuable dollar reserves or new revenue coming in, or default," a Treasury Department spokesperson told Reuters. As part of sanctions against Russia, the U.S. froze the Central Bank of Russia's access to around $300 billion in foreign exchange and gold reserves held in U.S. banks. However, the Treasury was allowing the Russian government to use those funds to make coupon payments on dollar-denominated debt on a case-by-case basis.

On Monday, the Treasury decided to prevent Russia from doing this as a $552.4 million principal payment on a maturing bond became due. A separate $84 million coupon payment was also due on Monday on a 2042 sovereign dollar bond. Russia has the ability to make the payments using the gold and foreign currency assets that are still available to it as the U.S. was only able to freeze access to around $300 billion of Russia's total reserves of around $640 billion. However, using those reserves to service its national debt would mean the country had less to spend on other expenses, including the ongoing war against Ukraine. So far, Russia has avoided a sovereign debt default despite the U.S. and its allies imposing significant sanctions on President Vladimir Putin's government. A default would occur if Russia does not make the payments within the required timeframe or if the country pays in rubles where other currencies, such as the dollar and euro, were specified. Russia has a total of 15 international bonds outstanding with a combined face value of about $40 billion. JPMorgan Chase had been processing debt payments for Russia but was stopped by the Treasury on Monday, Reuters reported, citing a source familiar with the matter. Russia reportedly has a 30-day grace period to make Monday's payment.


Moscow is on the precipace here. Defaulting would make it nearly impossible for the Russian government to borrow funding from international institutions for a long time.
 

MamboDervish

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U.S. Pushes Russia to the Brink of Default

Moscow is on the precipace here. Defaulting would make it nearly impossible for the Russian government to borrow funding from international institutions for a long time.

But there is this too.

The west has to be prepared to sustain it's support of Ukraine, and its sanctions against Russia, over the long haul, which will mean some sacrifices we will all be asked to make. It may yet take a few years before Putin feels the real depths of his folly.
 

phoenix2020

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U.S. Pushes Russia to the Brink of Default

iu




Moscow is on the precipace here. Defaulting would make it nearly impossible for the Russian government to borrow funding from international institutions for a long time.
Sorry I don’t see it. Replace “international institutions” with “Western institutions” and your post makes more sense. Wealthy nations like China will be happy to lend to or otherwise support Russia for the foreseeable future.
 

Rogue Valley

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Sorry I don’t see it. Replace “international institutions” with “Western institutions” and your post makes more sense. Wealthy nations like China will be happy to lend to or otherwise support Russia for the foreseeable future.

Well, people who follow Ukraine/Russia regularly would readily understand the gist of what I was referring to.
 

Rogue Valley

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Russia says it sent $650 million bond payment in rubles after US Treasury blocked dollar transfers

The terms for these two (2022/2024) bonds specify that repayment must be made in USD.

The Kremlin has apparently decided to hold on to its stash of USD and stiff these bondholders.

Russia now has a 30 day grace period to make the two bond payments as legally specified, or it will be considered to be officially in default.

A default here would be catastropic for the Russian Federation.
 

joluoto

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Sorry I don’t see it. Replace “international institutions” with “Western institutions” and your post makes more sense. Wealthy nations like China will be happy to lend to or otherwise support Russia for the foreseeable future.
China doesn't do shit for free. China doesn't care about Russia, it's all about what they get in return, and if it's worth it.
 

phoenix2020

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China doesn't do shit for free. China doesn't care about Russia, it's all about what they get in return, and if it's worth it.
Precisely. China is not going to let Russia's defaulting on debts to western nations influence its decisions about investing in or doing trade with Russia. People who think Russia defaulting is a catastrophic event need to understand that China does not care if some Western holders of Russian debt get left holding the bag because Russia did not or could not or was not allowed to pay. After all, by definition, if they default, it's the western institutions expecting to get paid that actually pay the price!
 

Juin

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China doesn't do shit for free. China doesn't care about Russia, it's all about what they get in return, and if it's worth it.



Let the Chinese speak for themselves. And what is your deal about China doing stuff for free? Did Germany do business with Russia for free? Germany is today dependent on Russian gas because Russia gave Germany a good deal. You make China look like a villain for doing exactly what Germany had been doing
 

Juin

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Precisely. China is not going to let Russia's defaulting on debts to western nations influence its decisions about investing in or doing trade with Russia. People who think Russia defaulting is a catastrophic event need to understand that China does not care if some Western holders of Russian debt get left holding the bag because Russia did not or could not or was not allowed to pay. After all, by definition, if they default, it's the western institutions expecting to get paid that actually pay the price!


Precisely. Lets give the Chinese a break. From their perspective what counts is whether Russia can pay. Russia can clearly pay. It is the holders of Russian debt who dont want to accept payment. Is this really smart?
 
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