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The default of Russia on its sovereign debt is getting closer with the decision taken yesterday, Tuesday April 5, by the US Treasury. It adopted a new measure limiting the dollar payment capacities of the Russian authorities.
The message from the US Treasury accompanying its decision is very clear; to face the next deadlines, Moscow must choose: either Russia empties its reserves in dollars, or it uses its export income, or it defaults. The financial sanctions taken against Russia form a noose that the US Treasury is gradually tightening according to increasingly frightening echoes from the war in Ukraine. The massacres of civilians attributed to Russian soldiers in Boutcha, on the outskirts of kyiv, triggered this new tightening. This is additional pressure on the Russian state, according to Anne-Laure Kiechel, the founder of Global Sovereign Advisory, a firm advising states, in particular on their sovereign debt. The end goal of the United States is to exhaust Russian resources to finance its dirty war in Ukraine.
Does Russia have the funds available to meet its deadlines?
In theory, very widely. Its external debt in Eurobonds amounts to 40 billion dollars, and it must face this year maturities of a total amount of 4.7 billion dollars. This is a priori largely covered by the reserves of its Central Bank. Even if these reserves are dwindling, they amount to hundreds of billions of dollars. In addition, Russia continues to export its hydrocarbons, it will bring in 320 billion dollars this year, more than enough to honor the payment of dividends, interest or reimbursements due.
Russia has always expressed its willingness to face
Indeed, Russia does not want to be forced into default, because it knows that it will pay dearly for it in the future. This could prevent it from borrowing on international markets or only at an exorbitant cost; however, it will need new money at one time or another to finance its economy. But in practice, its fate is now entirely in the hands of the US administration. The Treasury granted it an exceptional right to draw on its frozen dollar reserves abroad, this license could be renewed at the end of May. If this were not the case, the probability of a default would then be much higher, according to Anne-Laure Kiechel.
Even if Moscow repays its debt in rubles?
The use of an alternative currency is planned for six of the fifteen bonds issued by Russia. And this option applies only if the country has no other choice, which is not the case since Russia has, in fact, revenues in dollars. Everything will depend good the interpretation of the bodies responsible for declaring the default. The strategy of drying up the Russian economy via payment default is a long-term process that will probably take several more months. Renouncing Russian gas supplies would be much more effective. The decision is up to the main customers, the Europeans, and especially the Germans. And they are not yet ready to resolve it.
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