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Putin's humiliating U-turn as he dips into precious reserve in desperate bid to prevent co

WorldPutin's humiliating U-turn as he dips into precious reserve in desperate bid to prevent co

Moscow owes millions on two sovereign bonds, which are due to mature in 2022 and 2042. However, Russia initially attempted to pay the bond due on April 4 with roubles, rather than in US dollars as the contract of the bond specifies.

On Friday, Russia’s Finance Ministry said that it had attempted the dollar payments for its payments.

The ministry said it had made a payment of $564.8 million (£450M) on a 2022 eurobond and a payment of $84.4 million (£67M) on a 2042 eurobond, according to Reuters.

The funds have reportedly been channeled to the London branch of Citibank, however it is unclear whether they will reach their intended recipients.

The payments were due to be made in April and had entered a 30-day grace period before official default on May 4.

According to Bloomberg, the US Treasury is said to have approved the near-$650 million (£518M) in coupon and principal payments, as part of its strategy to force Russia to erode domestic reserves.

The outlet added investors have reportedly began to receive overdue payments on the two bonds, indicating Russia had successfully avoid a debt default.

Major ratings agencies suggested a failure to pay in dollars would constitute a first foreign debt default since 1917.

Russia also appeared to avoid a historic default in March, where it fulfilled interest payments worth $117 million (£93M) on two dollar-denominated sovereign eurobonds.

Kremlin spokesperson Dmitry Peskov said at the time any default would have been “purely artificial” because Russia had the funds necessary to fulfil its external debt obligations, but would be prevented from doing so by Western sanctions.

Moscow’s central bank had large amounts of money stored in assets from other countries, according to data from the Bank of Russia.

However, after sanctions following the invasion of Ukraine, Russia has been unable to access its foreign assets.

Since the start of the Ukraine war, $284 billion (£226M) in foreign assets have been frozen, making up $585 billion (£466M) of Russia’s stockpile according to the bank of Russia as of June 2021.

Russia’s foreign assets in the UK total a value around $26 billion (£20M), while France holds the largest amount of frozen assets at $71 billion (£56M).

US sanctions on Russia currently include a broad exemption for sovereign bond payments.

However, the exemption runs out on May 25 and the Treasury’s Office of Foreign Assets Control hasn’t said if it will be extended.

Richard Briggs, a money manager at GAM, told Bloomberg: “May 25th is the next hurdle.

“Unless OFAC extends that authorisation, they won’t be able to continue to make payments.”

The decision will come down to whether Washington deems it better to allow Russia to make payments and tap into its dollar cash pile kept at home, “or whether the optics of forcing a default is preferable,” Mr Briggs said.

It comes after Russian central bank governor Elvira Nabiullina slashed the country’s interest rates by three percentage points for the second time in less than a month.

She said: “Supply is contracting more significantly than demand, which is intensifying inflationary pressure.”

According to the World Bank, Russian gross domestic product is expected to nosedive by a minimum of 8 percent this year, and could even shrink by as much as 10 percent, the most since 1994.

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