US freezes Russian bonds: to punish Putin or shoot itself in the foot?
Experts on whether the prohibition of OFZ bond purchase is possible
Last weeks, the US Congress introduced a bill banning transactions related to Russian Federal Loan Obligations (OFZ) – the measure that Washington refused not a long time ago, as it would damage the global financing system. Now the future of the bill is unknown, while potential consequences of more sanctions are estimated by experts in different ways. Some of them say the prohibition will hit the ruble and lead to problems in the budget; others compare such a measure as shooting oneself in the foot. Realnoe Vremya tells the details.
Congressmen interested in bonds
The news about a possible expansion of sanctions against the Russian sovereign debt is unlikely to be called a complete surprise – the nervousness about this has conserved since last year. It was said to be one of the most painful measures that the USA could take against Russia.
Some people expected the prohibition of bonds to be announced as early as early 2018. Instead, the US Department of the Treasury made the ''Kremlin dossier'' public – a list of 210 public functionaries, managers and businesspeople, who, in Washington's opinion, were close to President Vladimir Putin. All people listed in the ''dossier'' were threatened to be imposed individual sanctions, they were really imposed against many people (for instance, businessman Oleg Deripaska, head of VTB Andrey Kostin, senator Suleyman Kerimov) after extending sanctions on 6 April.
But matters didn't come to the prohibition to hold Russian state obligations despite fears. Moreover, the US Department of the Treasury thought such measures would be harmful to not only Russia: according to Bloomberg, its special report said it would lead to negative consequences for the global financial market and companies.
It calmed investors down, but not for long. On 4 April, the US Congress received a bill Stand with UK against Russia Violations Act. It prohibits US citizens transactions related to Russian bonds – but not all, just the new ones.
It's presupposed President Donald Trump must approve the prohibition within 90 days after the bill was introduced. But de facto the potential sanctions will come into force later – they will affect the papers that will be emitted 180 days after the law comes into force.
Joaquin Castro – a member of the Democratic Party for Texas – is the author of the bill. The poisoning of ex-spy of the Main Intelligence Directorate Sergey Skripal and his daughter Yulia in British Salisbury was the reason for this bill. London thinks Russia is implicated in the poisoning, though British chemists couldn't prove the substance the Skripals suffered from was made in Russia.
The news about possible bond restrictions coincided with a general information background around the situation in the Russian fund and currency markets. The panic about the new round of sanctions declared last Friday made stock prices of all Russian public companies collapse on Monday.
After auctions on 9 April, the index of Moscow Exchange reduced by 8,34%, while RTS Index – by 11,44%. On 10 April, the market started to correct a bit, Moscow Exchange Index added 3,6%, and another 0,85% on 11 April. The ruble decreased against the dollar and the euro on Monday and Tuesday: the dollar's price in the market has exceeded 64 rubles first for a long time, the euro rate crossed 80 rubles (it bounced a bit back by the end of the day).
The buzz in the markets brought to a rise in Russian obligation rates. Due to the negative situation, the Ministry of Finance of Russia has decided to cancel the auction to place OFZ bonds, which was scheduled for 11 April, first since August 2015.
Painful blow or shooting oneself in the foot?
Experts don't have a single opinion about the possibility of the prohibition of transactions related to Russian public obligations and the consequences of this prohibition.