US Treasury: "Russia's Debt Repayment Grace Period Ends"... Concerns Over Russia's Default for the First Time in 100 Years

[Image source=AP Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] The U.S. government announced that it will not extend the grace period allowing Russia to make principal and interest payments on its sovereign bonds and will end it as planned on the 25th. As a result, Russia is highly likely to face a default on its debt for the first time in over 100 years.

According to CNN on the 24th (local time), the U.S. Treasury Department stated that it decided not to extend the sanctions relief that had allowed Russia to repay principal and interest on its sovereign bonds to U.S. creditors. Accordingly, the grace period will end at midnight on the 25th.

Previously, after Russia invaded Ukraine, the U.S. government imposed a comprehensive ban on transactions with the Russian Ministry of Finance, the Central Bank, major banks, and sovereign wealth funds. However, a grace period was granted until the 25th of this month to allow existing U.S. bondholders to receive principal or dividend payments from Russia.

Russia is currently facing a situation where it must repay $100 million (approximately 126.5 billion KRW) in interest on the 27th. If this is not prevented, a full-scale default is expected to begin. If Russia defaults, it will be the first default in over 100 years since the Communist Revolution in 1917.

The Russian government has stated that if the U.S. forcibly blocks repayment, it will repay in its currency, the ruble. However, since most dollar-denominated bonds prohibit repayment in currencies other than the dollar, even if payment is made in rubles, a default is expected to begin.

Earlier, U.S. Treasury Secretary Janet Yellen stated that there would be no extension of the grace period. At a press conference held ahead of the Group of Seven (G7) finance ministers' meeting in Germany on the 18th, Secretary Yellen said, "A final decision has not yet been made, but I do not think the grace period will continue," adding, "However, if Russia cannot find a way to make payments, it will technically be in default, but I do not think this signifies a major change in Russia's situation. They are already cut off from the global capital markets, and this will continue."