Russia makes last-minute bond payment to avoid default

Representative picture (Image: Reuters)

Russia staved off a default on its debt Friday by making a last-minute payment using its precious dollar reserves sitting outside the country, US Treasury officials said.

The amount of the payment was not disclosed, but earlier this month Russias finance ministry said it tried to make a $649 million payment due April 6 towards two bonds to an unnamed U.S. bank previously reported as JPMorgan Chase.

At that time, tightened sanctions imposed for Russia's invasion of Ukraine prevented the payment from being accepted, so Moscow attempted to make the debt payment in rubles.

Investors and rating agencies, however, did not expect Russia to be able to convert the rubles into dollars before a 30-day grace period expired next week, leading to speculation that Moscow was heading toward an historic default on its debt. Russia has not defaulted on its foreign debts since the Bolshevik Revolution in 1917, when the collapse of the Russian Empire led to the creation of the Soviet Union.

Treasury officials, who declined to be named because they weren't authorized to speak on the record, said Russia tapped into its foreign currency reserves currently sitting outside the country to make Friday's payment. Since the U.S. sanctioned Russia's Central Bank early in the conflict, Russia had only the ability to either use fresh revenues coming from activities like oil and gas sales, or existing foreign currency reserves sitting outside the country.

The U.S. has been attempting to force Russia to use its foreign currency reserves or any revenue from oil and gas sales in order to deplete the countrys financial resources.

News reports said Russia used its accounts with Citigroup in London to make the payments. A Citi spokeswoman declined to comment on the reports.