FILE PHOTO: View shows a Russian ruble coin and a US dollar banknote in this illustration in a photo taken on October 26, 2018. REUTERS / Maxim Shemetov / File photo
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NEW YORK / WASHINGTON, April 4 (Reuters) – The United States stopped the Russian government on Monday from paying off more than $ 600 million in US debt holders from US bank reserves in an effort to boost pressure on Moscow and eat. in its stocks in US dollars.
Under sanctions imposed after Russia’s invasion of Ukraine on February 24, foreign exchange reserves held by Russia’s central bank with US financial institutions have been frozen.
But the Ministry of Finance allowed the Russian government to use these funds to make coupon payments on government debt denominated in dollars on a case-by-case basis.
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On Monday, as the largest payments were due, including a principal payment of $ 552.4 million on a maturity bond, the U.S. government decided to cut off Moscow’s access to frozen funds, according to a spokesman for the US Treasury Department.
A $ 84 million coupon payment on a 2042 sovereign dollar bond was also due on Monday.
The move was intended to force Moscow to make the difficult decision on whether to use the dollars it has access to for debt payments or for other purposes, including supporting its military efforts, the spokesman said.
Russia faces historic bankruptcy if it decides not to do so.
“Russia must choose between draining the remaining valuable dollar reserves or new revenues, or default,” the spokesman said.
JPMorgan Chase & Co (JPM.N), which has so far processed payments as a correspondent bank, has been suspended by the finance ministry, a source familiar with the matter said.
The correspondent bank processes coupon payments from Russia, sending them to the paying agent to distribute to bondholders abroad.
The country has a 30-day grace period to make the payment, the source said.
DEFAULT HOLDINGS
Increased pressure comes as the United States and Europe plan new sanctions this week to punish Moscow for killing civilians in Ukraine. Read more
Russia calls its relocation to Ukraine a “special military operation.” Ukraine and the West say the invasion was illegal and unjustified. Burning images of a mass grave and tied bodies of people shot at close range sparked an international protest Monday. Read more
Russia, which has a total of 15 international default bonds with a face value of about $ 40 billion, has managed to avoid defaulting on its international debt so far, despite unprecedented Western sanctions. But the task is becoming more and more difficult. Read more
Russia was last allowed to make a coupon payment of $ 447 million on a 2030 sovereign dollar bond due to fall last Thursday, at least the fifth such payment since the start of the war.
If Russia fails to make any of its forthcoming bond payments within pre-determined deadlines or pays in rubles where the dollar, euro or other currency is indicated, this will be a default. Read more
Although Russia cannot gain access to international loan markets due to Western sanctions, default would deny it access to those markets until creditors are fully repaid and all lawsuits arising from default are settled. Read more
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Report by Megan Davis and Alexandra Alper; Edited by Sandra Mahler and Himani Sarkar
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