The Biden administration is expected to begin blocking Russia from paying American bondholders next week, increasing the likelihood of the first default of Russia’s foreign debt in more than a century.
An exemption to American sanctions has allowed Russia to keep paying its debts since February. That exemption expires on May 25.
The decision not to extend the exemption came after the Treasury Department and the State Department analyzed what would happen if Russia defaulted and determined that it would not have a significant economic impact, according to a person familiar with the deliberations.
The plan to let the carve-out lapse was reported earlier by Bloomberg News. A default would deal a symbolic blow to Russia, which has continued to make bond payments despite sweeping sanctions that have immobilized half of its foreign currency reserves. Russia has tried to make payments on dollar-denominated bonds in rubles and has threatened to file lawsuits to avoid default.
Russia has bond payments due on May 27 and June 24. It is not clear if it has any additional tools at its disposal to make them with the restrictions in place, which would forbid Americans from receiving interest, dividend, or maturity payments on Russian debt.
Treasury Secretary Janet L. Yellen said last week that the consequences of allowing Russia to default was still being studied.
“This is something that we are actively examining right now,” Ms. Yellen said at a Senate Banking Committee hearing. “We want to make sure that we understand what the potential consequences and spillovers would be of allowing the license to expire.”
She added: “We’re actively involved in an evaluation of the risks and impact of not renewing the license.”
Some Treasury Department officials have argued that the debt payment exemption was a useful way to help drain Russia’s resources. However, the Treasury Department ultimately determined that the remaining dollar bond payments did not represent a significant amount of money, the person familiar with the decision said.
The economic implications of a default for Russia and the world could be relatively small.
Economists estimate that Russia’s total foreign public debt amounts to about $75 billion, while Russia’s annual energy sales are worth about $200 billion. Investors have been anticipating a default since late February, and policymakers have suggested that a default does not pose a threat to the stability of the financial system.
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