Russia pays bonds at the last minute to avoid default

AP: On Friday, Russia averted a default on its debt by making a last-minute payment using its precious dollar reserves located outside the country, US Treasury officials said.

The amount of the payment was not disclosed, but earlier this month, the Russian Finance Ministry said it was trying to make a payment of $649 million, due on April 6, on account of two bonds to an unnamed American bank, previously reported as JPMorgan Chase.

At that time, the tightening of sanctions imposed for Russia's invasion of Ukraine did not allow accepting the payment, so Moscow tried to pay the debt in rubles. The Kremlin, which has repeatedly stated that it has the financial ability and desire to continue paying its debts, argued that extraordinary events give it a legal basis for payment in rubles, not dollars or euros.

Investors and rating agencies, however, disagreed and did not expect Russia to be able to convert rubles into dollars before the 30-day grace period expires next week, leading to speculation that Moscow is heading for a historic default on its debt.

Russia has not defaulted on its foreign debts since the Bolshevik Revolution of 1917, when the collapse of the Russian Empire led to the creation of the Soviet Union. The governing body over the swamps of credit defaults — insurance contracts designed to protect against default — has already ruled that Russia is in default.

Finance ministry officials, who declined to be named because they are not authorized to speak on the record, said Russia used its foreign exchange reserves, which are currently located outside the country, to make Friday's payment. Since the United States imposed sanctions on the Russian Central Bank at the beginning of the conflict, Russia had the opportunity to use only fresh income received from activities such as the sale of oil and gas, or existing foreign exchange reserves located outside the country.

The US is trying to force Russia to use its foreign exchange reserves — or any income from the sale of oil and gas — in order to deplete the country's financial resources.

The Ministry of Finance of Russia stated that it made payments at the London branch of Citigroup. A Citi spokesman declined to comment on whether the bank had processed the transaction.