Russia announced, on Wednesday, that it has repaid foreign loans in rubles for dollar-denominated bonds, after a reporter bank refused to complete payment orders.

The Ministry of Finance said, in a statement, that it was forced to pay an amount of 649.2 million dollars to foreign creditors in rubles, in a new blow to Russia's attempts to avoid defaulting on its sovereign debt in light of the wide-ranging economic sanctions imposed on it in response to its war on Ukraine.

The ministry said foreign banks had refused to transfer debt-servicing payments for international bonds, so the ministry transferred the payments in rubles.

And the Bloomberg news agency quoted the ministry as saying that it sent dollar payments for bonds due this month, but they were rejected, and Russia was forced to use local financial institutions.

The ministry added that it had transferred the full payment in rubles to the "National Settlement Depository" institution.

America tightens the screws on Russia's debt

The Russian move comes at a time when the US administration prevented Russia from paying more than $600 million to its sovereign debt holders from its reserves in US banks, in a move aimed at increasing pressure on Moscow.

Reuters quoted an informed source and a spokeswoman for the US Treasury as saying that the measure brings the matter closer to default.

The source explained that the payments did not obtain permission from the US Treasury to be dealt with by "JP Morgan", the bank concerned with international correspondence.

A Treasury spokeswoman said Russia must choose between depleting remaining dollar reserves, the arrival of new revenue, or defaulting.

Russia has a grace period of 30 days to make the payment.


In a Russian reaction to the US measure, Senator Vasily Ikonikov, a member of the Budget Committee of the Russian Federation Council, confirmed that Moscow could repay its public debt in rubles.

The Russian parliamentarian said that Russia had enough money in rubles to pay off the debt, and that if the creditors wanted to get their money, they could do so in the Russian currency.

The Russian parliamentarian stressed that the position of the Russian leadership aims to continuously reduce the dependence of the Russian economy on the dollar.

He added that a number of countries have already declared their willingness to purchase Russian energy resources in rubles.

More pressure on Russia

The US move aims to prevent Russia from using its reserves in US banks to repay its loans and finance its war on Ukraine, says Dimitr Lilikov, chief economist at the Martins Center for European Studies.

In an interview with Al-Jazeera, he added that the US decision aims to impose more pressure on Russia to exhaust its foreign exchange reserves locally to pay off its debts, and thus its inability to finance the war.

And Dimitr Lilikov expressed his belief that within 3-4 weeks Russia may announce its inability to repay its loans on the specified terms in foreign currencies, and therefore its debts will become poisonous, and investors will - accordingly - refrain from investing in Russia.

But Lilikov warned that even if Russia declared bankruptcy internationally, its war would continue because it had reserves of gold and rubles.

Denied access to global debt markets

Russia, which has a total of 15 international bonds maturing with a face value of about $40 billion, has so far avoided defaulting on its international debt despite unprecedented Western sanctions, but the task is becoming increasingly difficult.

A Reuters report says: If Russia fails to make any of its following bond payments within their due dates, or pays in rubles instead of dollars, euros or another specified currency, it will constitute a default.

While Russia is unable to access international borrowing markets due to Western sanctions, a default will prevent it from accessing those markets until creditors are paid in full and any legal issues arising from the default are settled, the Reuters report says.


default risk

France's Le Figaro newspaper says that the United States' failure to allow Russia to repay its US bank debt in dollars from Tuesday will increase pressure and exacerbate the risk of default in Russia.

According to the newspaper, the US Treasury said that "this will further drain the resources that Putin uses to continue his war against Ukraine, and will generate more uncertainty and challenges for the Russian financial system."

The leaders of the Group of Seven and the European Union took new measures on March 24 to continue to prevent the Russian Central Bank from using its international reserves, including gold, to block war financing.

According to the French newspaper, Western sanctions imposed in response to the Russian invasion of Ukraine led to the freezing of part of Russia's reserves held abroad, estimated at 300 billion dollars.

The newspaper pointed out that these sanctions raise fears that Moscow will not be able to meet its debts, and therefore is at risk of default.

She indicated that Western sanctions have paralyzed part of Russia's banking and financial system and led to the collapse of the ruble, and thus the default cuts off the state from financial markets and threatens its revenues for years.


Additional penalties

A source familiar with the matter told Reuters that the United States and its allies will announce, on Wednesday, a broad new set of sanctions related to Russia.

The source added that the sanctions will ban all new investments in Russia, increase restrictions on financial institutions and state-owned companies in Russia, and target Russian government officials and their families.

If Russia fails to make any of its following bond payments within their due dates, or pays in rubles instead of dollars, euros or another specified currency, that would constitute a default

"The United States will announce tomorrow, in coordination with the Group of Seven and the European Union, an additional broad package of sanctions that will impose significant costs on Russia and push it into further economic, financial and technological isolation," the source said.

He added that the measures that will be imposed tomorrow will lead to "weakening the main instruments of Russian state power and imposing severe and immediate economic damage on Russia."

The war, and Western sanctions imposed in response to it, are hurting the Russian economy, and experts predict a contraction of up to 15%.

The size of the Russian debt

The country’s external debt increased by $11 billion (2.37%) last year and amounted to $478.2 billion, according to the Russian Central Bank, which explained this by the impact of the dynamics of the index on the growth of the external debt of the banking system, in contrast to the decrease in the external debt of government institutions and other sectors, against the background of a decline in investor interest. global financial instruments in emerging market countries.

External debt is the total amount of debts of the state and its residents (institutions, companies, banks and other commercial entities) to non-resident foreign creditors.

gold reserve

As of January 1, 2020, Russia's gold reserves amounted to 2,271 tons, and reserves exceeded the maximum for 2008, while a record high was set on May 21, 2021 when gold reserves amounted to $600.9 billion.

Furthermore, the country has stored another $132 billion in gold in Russia (approximately 74 million ounces), about $30 billion in reserves in the International Monetary Fund, and Special Drawing Rights (the IMF unit of account), and this part of the reserves is protected Practically out of blocking.