But the Ministry of Finance allowed the Russian government to use these funds to make coupon payments in government debt in dollars on a case-by-case basis. On Monday, as most of the payments, including the $ 552.4 million capital payment for a maturing bond, expired, the US government decided to cut off Moscow’s access to the frozen funds, according to a US Treasury Department spokesman. The $ 84 million voucher payment was also due Monday in a 2042 government dollar bond. The move was intended to force Moscow to make the difficult decision on whether to use accessible dollars to pay off its debt or for other purposes, including supporting its war effort, the spokesman said. Russia is facing a historic bankruptcy if it chooses not to do so. “Russia has to choose between depleting the remaining valuable dollar reserves or new revenue coming in or going bankrupt,” he said. JPMorgan Chase & Co (JPM), which has been processing payments as a correspondent bank so far, has been stopped by the Treasury Department, according to a source familiar with the matter. The correspondent bank processes the coupon payments from Russia, sending them to the paying agent to distribute them to bondholders abroad. The country has a grace period of 30 days to make the payment, the source said.
Default concerns
Increased pressure comes as the United States and Europe plan new sanctions this week to punish Moscow for killing civilians in Ukraine. Russia calls its move to Ukraine a “special military operation.” Ukraine and the West say the invasion was illegal and unjustified. Images of a mass grave and the mutilated bodies of people shot at close range caused an international outcry on Monday. Russia, which has a total of 15 international bonds in circulation with a nominal value of about $ 40 billion, has managed to avoid defaulting on its international debt so far despite unprecedented Western sanctions. But the task becomes more difficult. Russia was last allowed to pay $ 447 million in 2030 government dollar bonds, which expire last Thursday, at least the fifth such payment since the start of the war. If Russia does not make any of the forthcoming bond payments within its pre-determined timeframes or pays in rubles denominated in dollars, euros or other currencies, it will constitute default. While Russia is unable to access international lending markets due to Western sanctions, a default would bar it from accessing those markets until the creditors are fully repaid and any bankruptcy cases are settled.
