Russia offers a system of foreign debt payment similar to gas

MOSCOW (AP) – Russia said on Monday it could use an agreement similar to that used to pay for its gas …

MOSCOW (AP) – Russia said Monday it could use an agreement similar to the one used to pay for its gas supplies to pay off its foreign debt denominated in dollars.

The Vedomosti newspaper quoted Finance Minister Anton Siluanov as saying that Russia was offering holders of its Eurobond obligations to adopt a payment system bypassing the Western financial infrastructure.

Earlier, Russia offered customers who receive its natural gas to open an account in dollars or euros in the third largest bank in Russia “Gazprombank”, then the second account in rubles. The importer paid the gas bill in euros or dollars and directed the bank to exchange money for rubles.

The system was created by order of Russian President Vladimir Putin and aims to avoid the risk of freezing gas payments as part of Western sanctions against Russia for its actions in Ukraine.

Siluanov told Vedomosti that a similar mechanism would be set up for Eurobondholders who would be asked to open foreign currency and ruble accounts with a Russian bank.

“When paying for gas, we are credited with the currency, which is translated into rubles,” – quoted Siluanov “Vedomosti”. “The Eurobond settlement mechanism will work in the same way, only in a different direction.”

According to him, payments will be made through the National Settlement Depository of Russia.

Asked about Siluanov’s comments, Kremlin spokesman Dmitry Peskov told reporters that “the practice of paying for gas has been convenient for both sellers and buyers, so why not use it in reverse.”

On Wednesday, the U.S. Treasury Department, led by Janet Yellen, allowed the expiration of a license that allowed Russia to continue to pay debts to holders through U.S. banks. The license extended to U.S. investors and international investors who have debt or bonds in dollars.

Russia says it will repay its dollar-denominated foreign debt in rubles, which is likely to be defaulted by foreign investors.

The U.S. Treasury Department, led by Janet Yellen, allowed the license to expire on Wednesday, allowing Russia to continue to pay its debtors through U.S. banks. The license extended to U.S. investors and international investors who have debt or bonds in dollars.

Russia responded to the move by saying it would pay in rubles and offer “the possibility of further conversion into the original currency”, and Siluanov outlined this on Monday, describing the proposed payment mechanism.

It is unclear whether the Russian proposal will be accepted by holders of Eurobonds, which will allow Russia to avoid default.

Russia has not defaulted on its international debts since the Bolshevik Revolution of 1917, when the Russian Empire disintegrated and the Soviet Union was created. Russia defaulted on its domestic debt in the late 1990s during the Asian financial crisis, but was able to recover from default with international aid.

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