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Credit…Sarahbeth Maney/The New York Times

WASHINGTON — The Biden administration will begin to prevent Russia from paying American bondholders and It was the first default of Russia’s foreign debt in more than a century.

The exemption from sweeping sanctions imposed on Russia as punishment for the US invasion of Ukraine has allowed Moscow to continue paying its debts since February. But that vote will end on Wednesday, and the US won’t extend it, according to a US. Announcement released by the Treasury Department on Tuesday. As a result, Russia will not be able to repay billions of dollars in debt and interest on bonds held by foreign investors.

The move represents the escalation of US sanctions at a time when the war in Ukraine continues. Russia shows little signs of softening. Biden administration officials have debated whether to extend what’s known as the general license, which allows Russia to pay interest on the debt it sells. By extending the exemption, Russia would continue to deplete its US dollar reserves and American investors would continue to receive their guaranteed payouts. But trying to intensify the pressure on the Russian economy, officials ultimately decided that Russia’s default would not have a significant impact on the global economy.

Treasury Secretary Janet L. Yellen pointed to how Biden’s administration was inclined when she said at a press conference in Europe last week that the exemption was created to allow “an orderly pass” for investors to sell securities. She said it was always meant to be for a limited time. And she noted that Russia’s ability to borrow from foreign investors has already been essentially cut off by other sanctions imposed by the United States.

“I don’t think it’s really a significant change in Russia’s situation if Russia can’t find a legal way to make these payments and technically they can’t pay off their debts,” Yellen said. “They are already cut off from global capital markets and that will continue.”

While the economic impact of Russia’s default was minimal, it was an outcome that Russia sought to avoid, and the Biden administration’s move represents an escalation of US sanctions. Russia has already made an unsuccessful attempt to pay its bonds in rubles and threatened to take legal actionarguing that he should not default on his debt if he is not allowed to pay.

“We can only guess what worries the Kremlin most about default: Putin’s stigma on his economic management record, damage to reputation, financial and legal dominoes set in motion the default, etc.” He’s from the University of Georgia Terry School of Business and is an expert on government debt. “One thing is pretty clear, however: Russia was keen to avoid this scenario, even willing to pay in valuable non-sanctioned currency to avoid a major default.”

Sanction experts estimate that Russia has about $20 billion in outstanding debt not held in rubles. It is unclear whether the European Union and Britain will follow the US lead, which will put even more pressure on Russia and leave a broader group of investors unpaid, but most of the recent sanctions actions have been tightly coordinated.

The prospect of Russia’s default has already taken some of the big US investors’ losses. Investment management firm Pimco has seen the value of Russian bond holdings drop by more than $1 billion this year, and pension funds and mutual funds with exposure to emerging market debt have also suffered losses.

In the near term, Russia has two foreign-currency bond payments due Friday, and both have clauses in their contracts that allow repayments in other currencies if “for reasons beyond its control” Russia is unable to pay as originally agreed. currency unit.

Russia has approximately $71 million in interest payments on a dollar-denominated bond that will mature in 2026. There is a provision in the contract to be paid in euros, British pounds sterling and Swiss francs. Russia also has an interest payment of 26.5 million euros ($28 million) on a euro-denominated bond that will mature in 2036 and be repaid in alternative currencies, including the ruble. Both contracts have a 30-day grace period for payments to reach creditors.

Russia’s finance ministry said on Friday it had sent the funds to the payments broker, the National Settlement Depository, a Moscow-based institution, a week before the payment was due.

The finance ministry said it has fulfilled its debt obligations. However, more transactions with international financial institutions are required before the payments reach the bondholders.

Adam M. Smith, senior enforcement officer in the Obama administration’s Treasury Department, said Russia would likely default in July and expect a wave of lawsuits from Russia and its investors.

He said that while the default would do some psychological damage to Russia, it would increase borrowing costs for ordinary Russians and hurt foreign investors not involved in Russia’s invasion of Ukraine.

“The interesting question for me is: What is the policy objective here?” said Mr. Smith. “That’s what’s not entirely clear to me.”

Alan Rappeport reported from Washington and Eshe Nelson from London.

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