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Default Is Inevitable: USA Prepares Powerful Blow To Russia's Economy

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Default Is Inevitable: USA Prepares Powerful Blow To Russia's Economy

This could be the last straw in Russia's "debt saga".

The administration of US President Joe Biden intends to block entirely Russia's ability to make payments to US bondholders next week. Such steps may bring Moscow closer to default.

This was reported by Bloomberg, citing sources.

The Treasury Department's Office of Foreign Assets Control wants to revoke the license, which is due to expire on May 25.

"This could be the last straw in Russia's debt saga after nearly three months of war in Ukraine. It has now managed to make all its payments to creditors, overcoming the sanctions that have closed some ways," the publication notes.

At the same time, some Finance Ministry officials argued that it would have been wise to allow Russia to pay its debt, which would have further exhausted its coffers and diverted resources that would otherwise have been spent on weapons and military operations in Ukraine. However, the administration has decided to continue the financial pressure on Moscow.

Moscow's next debt payments on foreign bonds maturing in 2026 and 2036 are due on May 27. The former is denominated in dollars but allows payments to be made in euros, Swiss francs or sterling. The 2036 bond, which is euro-denominated, has an additional clause allowing payment in the Russian national currency.

A default of the Russian Federation would have a negative impact on the economy. The aggressor country would have to launch a whole series of defaults of state-owned enterprises and private companies would be affected as well.

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