The US is cutting off another financial avenue for Russia to pay off its international debt, a move that could bring the country closer to a default.
The US Treasury Department said it will end a waiver that had allowed US bondholders to accept payments and tighten sanctions imposed over the war in Ukraine.
Russia, rich in oil and gas, has the means to pay.
She has already signaled plans to contest any default.
The country has nearly $2 billion worth of payments due on its international bonds by the end of the year.
While the new rules only apply to people in the US, they will make it harder for Russia to make payments elsewhere, given the role of US banks in the global financial system.
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The US had already banned Russia from using US banks to wire payments.
In comments last week, US Treasury Secretary Janet Yellen warned that the investor waiver is likely to expire. She said the exemption was intended to allow for an “orderly transition”.
Analysts have said they don’t expect any major impact from the move outside of Russia, with IMF chief Kristalina Georgieva saying in March the exposure to the holdings was “not systemically important”.
Russia’s debt was downgraded to “junk status” by major rating agencies back in March, a move that bars it from purchases by big investors, making it harder for Russia to raise money in international markets.
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 they rushed to offload them or held on in the hope that the Eventually normalized.
A default would be the first time Russia has defaulted on its national debt since 1998 – the economic crisis at the end of President Yeltsin’s administration.
It would likely trigger a court case and open up Russia to recovery proceedings from creditors.
Within Russia, impacts would only be felt in the long term as part of the country’s broader economic isolation, Prof Nichols said.
“Russia just has a lot of oil and gas and that means a lot of money, but over the long term this is part of a web of instruments designed to make it much, much harder for Russia to go to war on its neighbors,” he said.
“It will be really interesting to see what happens,” said Prof Nichols.
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