On Wednesday, the United States will destroy the final avenue for Putin’s Russia to repay billions in debt to international investors.
This is all but making sure that Russia defaults on its debts for the first moment since the Communist Revolution.
Their Time is Running Out
In a letter, the Treasury Department stated it does not plan to extend the license that allows Russia to continue paying its bondholders through American institutions.
The Treasury allowed institutions authority to execute any interest payments from Russia after the first round of restrictions. The deadline is midnight on May 25.
The Biden government previously showed signals of unwillingness to ask for an extension.
Treasury Secretary Janet Yellen stated the time frame existed “to give an amount of time for an amicable resolution to take place and for stockholders to sell assets.”
This was said at a media event before the Group of Seven government’s talks in a town, Germany, the other week.
US closes loophole for Russian debt payments https://t.co/pNblADmQi1
— BBC News (World) (@BBCWorld) May 24, 2022
Russia can’t repay its global bond investors if it did not have permission to use US companies to pay its debts. The Kremlin has been paying its debts through companies JPMorgan Chase and Citigroup.
Most investment banks in Russian debts have most likely sold their stocks at this point, according to Jay Auslander, a notable national debt lawyer who in the past handled past debt crises, such as the one in South America.
Those still retaining the debts are either equity and debt investors or those who are willing to wait a few years for the matter to be resolved through litigation.
“The vast majority of those who desired to leave have done so. Finding buyers is the main challenge,” he explained.
The Kremlin seems to have anticipated the US would not permit Russia to continue paying its debts. On Friday, the Russian Finance Ministry pre-paid two bonds that were due soon, allowing it to beat the May 25 deadline.
What Will Russia Do?
The next of Russia’s loan repayments are due on June 23.
Those bonds, like other Russian loans, have a 30-day time frame. This means Russia will be officially in default of its loans by late July, except in the unlikely outcome that the Russia-Ukraine war winds to a close before then.
The US will close the last avenue for #Russia to pay its billions in debt back to international investors on Wednesday, making a Russian default on its debts for the first time since the Bolshevik Revolution all but inevitable. https://t.co/kAZyGRgr5V
— Economic Times (@EconomicTimes) May 25, 2022
For months, traders have been fairly certain Russia will default. For weeks, insurance contracts helping the Russian Russian debt have placed an 80% chance of default.
Rating organizations have ranked the country’s credit score as junk.
Since the Russian Revolution of 1917, when the Russian world collapsed and the Soviet Union was born, Russia never defaulted on its foreign loans.
During the Asian debt crisis in 1997, Russia failed to pay its internal loans but was able to come back with the support of international aid.