OPINION:
As Russia looks to sell Eurobonds to plug holes in its Russian federal budget, the Obama administration has asked U.S. banks to not participate in the offering and therefore maintain financial pressure on the Kremlin.
The United States and the EU have caused great financial stress in the Russian Federation with the sanctions imposed after the Kremlin annexed the Crimean Peninsula and fanned the flames of a separatist conflict in East Ukraine. When paired with the unforeseen collapse in the price of crude oil, the sanctions have been much more effective than the White House and Moscow ever envisioned.
“Many” banks didn’t respond to the Russian Finance Ministry’s call for proposal to organize the sovereign Eurobond sale, which means they won’t be participating, Russian Deputy Finance Minister Sergey Storchak told reporters Thursday, reports Bloomberg.
“We continue to be clear in our engagements with U.S. companies that we believe there are risks — both economic and reputational — associated with a return to business as usual with Russia,” the State Department said Wednesday. “It is essential that private companies — in the U.S., EU, and around the world — understand that Russia will remain a high-risk market so long as its actions to destabilize Ukraine continue.”
Russia does not have a great deal of sovereign debt, but its foreign currency reserves are dwindling as the central bank attempts to fight the devaluation of the ruble to record levels in the face of $30 oil. Analysts suggest at the current burn rate, Russia only can continue to spend at these levels for a couple more years. At some point, without a way for Russian companies to access capital and roll over debt, the situation could become dire. Access to global debt capital markets would go a long way to alleviating the financial stress on the Russian government, banks and corporations.
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