Russia edged closer to a potential default on its international debt on Wednesday as it set aside roubles to pay holders of international bonds that need to be repaid in dollars and said it would continue to do so as long as its foreign exchange reserves are blocked by sanctions.
The United States on Monday stopped Russia from paying holders of its sovereign debt more than $600 million from frozen reserves held at U.S. banks, saying Moscow had to choose between draining its dollar reserves at home and default.
Russia has not defaulted on its external debt since reneging on payments due after the 1917 Bolshevik Revolution, but its bonds have remerged as a flashpoint in the diplomatic crisis and sanctions tit-for-tat between Moscow and western capitals.
â€œThis speeds up the timeline around when Russia runs out of space on willingness and ability to pay,â€ one fund manager holding one of the bonds due for payment on Monday said.
The Kremlin said it would continue to pay its dues.
â€œRussia has all necessary resources to service its debts… If this blockade continues and payments aimed for servicing debts are blocked, it (future payment) could be made in roubles,â€ Kremlin spokesperson Dmitry Peskov said.
Moscow has managed to make a number of foreign exchange coupon payments on some of its 15 international bonds with a face value of around $40 billion outstanding before the United States stopped such transactions.
While sanctions have frozen roughly half of $640 billion in Russiaâ€™s gold and foreign currency reserves, the country still receives billions of dollars from exporting crude and gas.