Russia Pays $650 Million in Foreign Bonds Out of Their Domestic Foreign Currency Reserves

May 4, 2022 (EIRNS)—The Putin government decided last Friday, April 29, that they would go ahead and make an overdue $650 million payment on foreign-held bonds out of the foreign currency reserves still under their control—and not “frozen” (i.e., stolen) by the U.S. Treasury Department as part of their Wild West sanctions against Russia. Until now, the Russian government had offered to pay the $650 million on notes coming due either out of the frozen assets, or in rubles—which was flatly rejected by the creditors and the U.S. Treasury.

Russia made the payment in time to meet the deadline of May 4 to finalize the payment on April 4 due dates, in order to avoid being declared in official default. It is not clear at this time if the decision was made as a concession to international pressure, or as a tactical move because Russia has bigger fish to fry at this time. For example, there is growing tension and angst across Europe over Russia’s demand that they be paid in rubles for gas. Politico commented:

“EU companies are scrambling to understand how to keep paying for Russian gas without falling foul of EU sanctions or getting their gas supply cut off by Moscow.... Moscow sent a signal it’s not bluffing last week when it stopped supplying Poland and Bulgaria, after both countries refused to comply with Russia’s request. Further gas payments are coming due in the second half of May, raising the prospect of more shut-offs unless a solution is found.”

According to CNBC, the Treasury’s Office of Foreign Assets Control (OFAC), the department at the Treasury that administers and enforces economic and trade sanctions, received the bond payments from Moscow last week, and at least one international clearinghouse had processed them for payment. “The funds have reportedly been channeled to the London branch of Citibank, but it is unclear whether they will reach their intended recipients before the deadline. A spokeswoman for Citibank declined to comment,” CNBC reported.

CNBC also quoted Timothy Ash, senior EM sovereign strategist at BlueBay Asset Management, expressing surprise that the OFAC had approved the payment. “OFAC is keeping all options open. It still has the option of not extending the general license [to allow such payments] on May 27, and can act any time to stop Western institutions from processing bond repayments,” Ash told CNBC. He said that Russia clearly wants to pay its creditors and avoid default, but: “OFAC can force Russia into default at any time. OFAC is still in the driving seat.”