US sanctions on Russia’s sovereign debt formally come into force on Monday

Particularly, the United States prohibits its companies from directly acquiring Russian debt liabilities issued by the Central Bank, the National Wealth Fund and the Finance Ministry after June 14, 2021

The US sanctions on a number of transactions with Russia’s sovereign debt, announced back in April, formally come into force on Monday.

It concerns the next package of anti-Russian restrictions, the US administration announced on April 15. Washington also specified the terms of their entry into force.

US President Joe Biden signed an executive order to impose sanctions on Russia on April 15. Particularly, the United States prohibits its companies from directly acquiring Russian debt liabilities issued by the Central Bank, the National Wealth Fund and the Finance Ministry after June 14, 2021.

In addition, the administration noted, American financial institutions are prohibited from lending ruble or non-ruble funds to these three organizations. The restrictions extended the existing bans on Russian sovereign debt transactions, which have been in effect since August 2019.

At that time, American banks were prohibited from buying Russian non-ruble debt government bonds on the primary market and from providing non-ruble loans to the Russian authorities. Now the American authorities have banned them from participating in the primary placements of new issues of Russian ruble government bonds. It concerns securities issued after June 14, 2021. The current ban applies only to newly issued ruble sovereign debt obligations on the primary market, but not on the secondary market and not on existing holders of sovereign debt obligations.

Impact of new sanctions

In April, a number of experts interviewed by TASS said that the impact of the new sanctions on the ruble would not last long. Then the Russian stock market reacted to the restrictions rather calmly. Experts pointed out that Washington introduced milder restrictions compared to the expected tough response from the Washington administration - a complete ban on any actions related to the release of the Russian national debt. In this case, American investors would be forced to sell the securities they now have.

In April, Executive Vice-President of the Russian Union of Industrialists and Entrepreneurs Alexander Murychev told TASS that the imposition of sanctions on Russia’s state debt will not cause big problems.

According to him, if banks lack liquidity, they will be able to obtain the necessary resources from the Bank of Russia.

Murychev also noted that in his opinion, those companies that have invested in the Russian economy are unlikely to refuse to work in the Russian Federation.

In turn, Russia’s Finance Minister Anton Siluanov said that the US sanctions against the country’s sovereign debt make it possible to speak of a loss of profits for the US financial institutions, since Russian investors prevail in the structure of the federal loan bonds. According to him, there are enough instruments in the financial market of Russia to strengthen stability, they will be used if necessary. Siluanov stressed that the temporarily free funds in the single treasury account (in the amount of more than four trillion rubles - $55 bln) provide sufficient flexibility in this regard.

In addition, as the international rating agency Moody’s said in its April commentary, Russia's high financial reserves will enable the country to cope with the negative effect of the sanctions.

16.06.2021 09:46