The Biden administration is expected to begin blocking Russia from paying U.S. bondholders next week, The first default of Russia’s external debt over a century.
The exemption from US sanctions has allowed Russia to continue to repay its debt since February. The exemption expires on May 25th.
According to people familiar with the deliberations, the decision not to extend the exemption was made after the Treasury and State Department analyzed what would happen if Russia defaulted and determined that it would not have a significant economic impact. ..
Plans to revoke the carve out were previously reported Bloomberg News..
The default will give Russia a symbolic blow, it has Continued to pay bonds Despite clearing sanctions that fixed half of foreign exchange reserves. Russia tried to pay dollar-denominated bonds in the ruble and threatened to file a proceeding to avoid defaults.
Russia will have bond payments on May 27th and June 24th. It is not clear if there are additional tools at their disposal, with restrictions prohibiting Americans from receiving interest, dividends, or maturity payments on Russian debt.
Treasury Secretary Janet Yellen said last week that the implications of admitting Russia’s default are still under investigation.
“This is something we are currently actively considering,” Yellen said in a Senate Banking Commission hearing. “We want to make sure we understand the consequences and spillovers that can cause a license to expire.”
“We are actively involved in assessing the risks and implications of not renewing the license,” she added.
Some Treasury officials claim that debt forgiveness is a useful way to deplete Russia’s resources. However, the Treasury finally decided that the payment of the remaining dollar bonds did not represent a large amount, said a person familiar with the decision.
The economic impact of Russia and the world’s defaults can be relatively small.
Economists estimate that Russia’s total foreign public debt amounts to about $ 75 billion, while Russia’s annual energy sales are worth about $ 200 billion. Investors expect defaults from late February, and policymakers suggest that defaults do not threaten the stability of the financial system.