Russia said it made a critical $117 million payment that was due on two government bonds — enabling it to avoid the country’s first default on foreign debt since the 1917 revolution.
The Finance Ministry in Moscow says the funds were transferred to payment agent Citibank, based in London.
JPMorgan Chase & Co., the correspondent bank Russia used to send the payment to Citigroup, said it had processed the funds, according to Bloomberg.
It then sent the money to Citi after receiving approval from the Biden administration.
The Post has contacted JPMorgan Chase and Citibank seeking comment.
Earlier on Thursday, there was doubt as to whether bondholders would receive the money since the Russian government indicated this week it planned to make the payment in rubles. The rules on the bonds required their payments to be made in dollars — and it was expected Russia could have difficulty accessing dollars after it’s been largely frozen out of the global financial system.
Timothy Ash, a senior emerging markets sovereign strategist for London-based BlueBay Asset Management, told The Post that he was taking a wait-and-see approach. “We’ll have to see if [the payments] reach the bondholders,” he said.
“If they indeed did pay, they realized the consequences of default are pretty devastating for Russia,” Ash contended. “Once they go into default, coming out of default will be very difficult for them.”
The last time Russia defaulted on its domestic debt was 1998, but it was able to recover thanks to Western governments’ readiness to extend rescue loans. It last defaulted on its foreign debt — or debt sold to investors outside of the country — all the way back in 1917, during its revolution.
Russia’s economy, including the Bank of Russia (above), has been crippled by sanctions imposed by the United States and the European Union. Bloomberg via Getty Images“This time around, the West will have absolutely no interest in helping Russia come out of default,” Ash said. “For bondholders to negotiate with sanctions entities would be pretty difficult.”
Russian Finance Minister Anton Siluanov told Russia state-run media outlet Russia Today that the country fulfilled its obligations to foreign creditors, though he added that the payments may not go through since they’re at risk of being blocked by the US.
A spokesperson for the US Treasury Department told The Post that Washington would allow the payments to go through.
Siluanov claimed the “possibility or impossibility of fulfilling our obligations in foreign currency does not depend on us.”
The sanctions imposed on Russia have led to a severe devaluation of the national currency, the ruble. Getty Images“We have the money, we made the payment, now the ball is in America’s court.”
Despite Siluanov’s claims, there is some uncertainty as to whether investors will actually get their money from the Kremlin since the Russian government used frozen foreign assets to make the payment.
Those assets were subject to sanctions imposed by the US and the European Union after President Vladimir Putin launched an invasion of Ukraine.
The war, which has turned Western public opinion firmly against Russia, is entering its fourth week as Russian forces remain bogged down in the face of fierce resistance from the Ukrainian military and citizenry.
Siluanov said the US and EU sanctions have frozen some $315 billion worth of foreign reserves.
If the US blocks the payment, Russia could try to pay in rubles, but the currency has been so devalued that the country would have no choice but to default on its debt, according to credit ratings agency Fitch.
Dmitry Peskov, the spokesperson for the Kremlin, said any default would be “entirely artificial” since Russia had the money to fulfill its debt obligations.
A Russian debt default would be catastrophic for the country, particularly after sanctions were imposed in the wake of the invasion of Ukraine. AFP via Getty Images“The fact is that from the very beginning we have said that Russia has all the necessary funds and potential to prevent a default — there can be no defaults,” Peskov said, according to Reuters.
“Any default that could arise would have an entirely artificial character.”
Ash told The Post that whether a default is “artificial” doesn’t matter, since the Kremlin would still be in default.
“Perhaps they should have thought about that before they invaded Ukraine,” he said.
