The White House said Russia is likely on the verge of default Friday after the US allowed a key payment waiver to expire – a development that a top Biden official hailed as an indication of the Kremlin’s increasing isolation from the global economy following its invasion of Ukraine.
The likelihood of a Russian default increased this week after the waiver expired, ensuring that US banks and individuals could no longer accept bond payments from the Russian government. Russia faced a Friday deadline to make $100 million in bond payments on foreign debt or risk default.
“This means that Russia will likely fail to meet its obligation and face default, an enduring sign of their status as a pariah in the global financial system,” White House Press Secretary Karine Jean-Pierre told reporters during his Thursday briefing.
“We expect the impact of the US and the global economy to be minimal given Russia has already been isolated financially,” Jean-Pierre added. “That being said, Treasury Department continues to monitor and have conversations with the global financial community.”
Russia began transferring the money required to cover the debt last week as US officials indicated they would allow the waiver to expire, Bloomberg reported. The majority of the money due is tied to a dollar-denominated bond set to mature in 2026 – the terms of which do not allow repayment in Russian rubles.
The Kremlin has indicated it plans to cover the debt in rubles anyway – a move that could cause Russia to default on its foreign debt obligations for the first time since World War I.
Russia Finance Minister Anton Siluanov described the dilemma as an “artificial situation created by an unfriendly nation,” according to Bloomberg. He added that Russia has “the money and the willingness to pay.”
In April, Credit agency Moody’s warned that efforts by Russia to cover dollar-denominated bond payments in rubles would likely trigger a default. If Russia misses the Friday deadline, it would have a 30-day grace period to rectify the situation.
Russia narrowly avoided a default last month after it made a pair of overdue debt payments. At the time, Russia’s Finance Ministry said it made a $564.8 million payment on a 2022 on a dollar-denominated bond set to mature this year and an $84.4 million payment on another bond set to mature in 2042.
Kremlin officials initially set they would make the payments in rubles, only to reverse course and cover the debt in dollars.
Russia hasn’t defaulted on its foreign debt since the Bolshevik revolution of 1917, according to Reuters. The Kremlin’s last default of any type occurred in 1998.