The United States is preparing to force Russia to default on its international debts for the first time in a century in a blow to Vladimir Putin.
The Office of Foreign Assets Control will allow an exemption allowing Moscow to make bond payments, leaving it no chance to avoid a default, sources told Bloomberg.
The Kremlin insisted it would avoid such an outcome on Wednesday, with Finance Minister Anton Siluanov saying it could still make payments in roubles.
Failure to repay its $20 billion in international debt could make Russia a pariah in international loan markets for years to come, making it harder for its government and businesses to raise funds.
It would be the first time the country failed to pay foreign lenders since the aftermath of the Bolshevik Revolution.
A temporary exemption was granted by OFAC in late February, allowing Russia to continue making payments to Western investors despite widespread sanctions.
It will expire on May 25, just two days before Moscow is due to make several bond payments.
Last week, Treasury Secretary Janet Yellen said the United States was “actively considering” forcing Russia to default.
“We want to make sure that we understand what the consequences and potential fallout would be if the license expired,” she told senators.
Russia narrowly avoided a default earlier this month, tapping into its limited domestic foreign exchange reserves to meet $650 million in arrears on two bonds. He had attempted to make these payments in rubles, but this was rejected by international lenders.
Payments due on May 27 have different contractual terms, which means that this time payment in rubles may be possible. But parts of another installment due in June stipulate that dollars must be paid, so Russia’s fate appears sealed if the United States chooses to further sanction the Kremlin by preventing payments.
Mr. Siluanov pledged to sue the United States if Russia were unable to make its payments.
Some Treasury officials have argued that Russia should be allowed to continue making payments, forcing the Kremlin to dip into its reserves. However, letting the exemption expire increases Moscow’s financial isolation.
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This notice was published: 2022-05-18 16:22:47