The Washington Post - USA (2022-05-25)

WEDNESDAY, MAY 25 , 2022. THE WASHINGTON POST EZ RE A

War in Ukraine

BY JEFF STEIN

The Treasury Department on

Tuesday took a major step toward

pushing Russia into a government

default, announcing it would no

longer allow the Kremlin to make

debt payments owed to American

bondholders.

The move will make it much

harder, if not impossible, for Rus-

sia to avoid a default — a breach of

its national debt commitments —

that Moscow has tried to avoid

since launching the war in

Ukraine.

The Biden administration im-

posed sanctions on Russia’s cen-

tral bank shortly after the start of

the war, but it issued a special

license exempting bond pay-

ments, allowing Russia to contin-

ue to pay its loan obligations. That

license was set to expire this week,

and Treasury is now saying it will

not be renewed. That means

American banks will not be able to

process debt payments when Rus-

sia tries to make them. The Rus-

sian government owes about

$20 billion worth of bonds, mostly

in dollars, and it owes about

$500 million in interest payments

over the next month, according to

Gerard DiPippo, a senior fellow

with the economics program at

the Center for Strategic and Inter-

national Studies.

“This will make the likelihood

of a default now significant,” said

Adam Smith, a partner at Gibson

Dunn and a f ormer Obama admin-

istration sanctions official. “We’ve

never done this to an economy like

this before.”

Treasury’s announcement rep-

resents part of a much broader

financial campaign against Russia

in response to the invasion. Rus-

sia’s economy is set to contract by

as much as 15 percent as a result of

the West’s sanctions, according to

the White House, as the United

States and its allies have targeted

Kremlin elites, prevented Moscow

from accessing its international

currency reserves and blocked key

technology imports.

Being forced into a debt default

would add to the list of Russia’s

economic black marks, although

experts give different assessments

of its immediate impact on the

Russian economy. In G ermany last

week at a conference of economic

officials from the Group of Seven

Western industrialized nations,

Treasury Secretary Janet L. Yellen

played down the repercussions of

a Russian default, pointing out

that the country is already largely

unable to raise funds from inter-

national creditors because of the

existing sanctions and investor

flight over the war.

“Russia is not able right now to

borrow in global financial mar-

kets; it has no access to capital

markets,” Yellen told reporters. “If

Russia is unable to find a legal way

to make these payments, and they

technically default on their debt, I

don’t think that really represents a

significant change in Russia’s situ-

ation.”

Still, a Russian default would

mark the enormous decline in its

international pedigree. Govern-

ments issue debt to raise money,

but they must meet payments on

what they owe to attract interna-

tional capital and ensure low bor-

rowing costs. Although hit repeat-

edly by international financial

sanctions since the war began,

Russia has to this point met its

obligations to international bond-

holders. Some sanctions experts

say failure to make those pay-

ments would cement long-term

consequences for Russia, ensur-

ing that investors steer clear.

Russia is expected to try to find

other routes to make the pay-

ments, but it is unclear if it will be

able to do so. Ariel Cohen, a senior

fellow at the Atlantic Council Eur-

asia Center and a member of the

Council on Foreign Relations, said

it was possible that Russia —

buoyed by energy sales — could

still find a way around U.S. finan-

cial institutions to pay bondhold-

ers. But he said he doubted the

country’s ability to do so.

“This shows the strategy being

pursued to cripple the Russian

economy and make it pay for a

long time,” said Mark Sobel, a for-

mer Treasury Department official.

“They’re going to suffer a deep

recession, and the money won’t

come back. This default is part of

that.”

Treasury moves to block

debt payments by Russia

concerns were high on Biden’s

agenda, with meetings covering a

range of issues, including sup-

port for Ukraine and announcing

a new economic framework in-

tended to act in part as a counter-

weight to China’s effort to in-

crease its influence in the Indo-

Pacific.

Japan’s defense minister, No-

buo Kishi, said Tokyo expressed

“grave concerns” about the

flights through diplomatic chan-

nels to China and Russia. During

a news conference Tuesday, he

called the move especially “pro-

vocative,” with the Quad meeting

taking place simultaneously. It

marked the fourth time since

November that Chinese and Rus-

sian military aircraft have con-

ducted such flights, Kishi said.

“The combined fact that China

and Russia were willing to go

through this exercise while the

Quad meeting was underway in

Japan and as events continue to

unfold in Ukraine indicates the

depth of their partnership and

demonstrates that we should

only expect it to deepen in the

months ahead,” said David O.

Shullman, senior director of the

Global China Hub at the Atlantic

Council.

The White House said in

March that Russia, hobbled by

trade restrictions and other eco-

nomic sanctions imposed by the

United States and a host of coun-

tries in response to the invasion

of Ukraine, asked China for mili-

tary equipment. So far, the senior

administration official said, there

is no evidence that Beijing has

provided such assistance.

The 13-hour joint patrol was

conducted under the two coun-

tries’ annual military coopera-

tion plan, according to the Chi-

nese and Russian defense minis-

tries. It follows a joint statement

in February in which Russian

President Vladimir Putin and

Chinese President Xi Jinping

pledged that the friendship be-

tween the two states had “no

limits” and there were “no ‘for-

bidden’ areas of cooperation.”

The senior U.S. official called

that statement proof that, wheth-

er in Eastern Europe or the

Western Pacific, “China and Rus-

sia would have their own spheres

of influence where it would be

natural and acceptable to wield

their power against their neigh-

bors.”

“They are working together to

advance that vision,” the official

said.

Russia’s Ministry of Defense

said the exercise was not aimed at

third countries and that “there

were no violations of the airspace

of foreign states” during the exer-

cise, the state-owned media out-

let Tass reported Tuesday.

In Seoul, senior military offi-

cials said they scrambled war-

planes after at least four Chinese

and Russian military aircraft flew

into South Korea’s air defense

zone. Although that area is not

part of the country’s territorial

airspace, authorities call on for-

eign planes that enter the zone to

identify themselves.

The air patrol was composed of

Russian Tu-95MS strategic

bombers and Chinese H-6K stra-

tegic bombers, according to Rus-

sia’s defense ministry. Such exer-

cises take awhile to prepare and

was probably planned well in

advance, officials said.

“But they could have chosen

not to do it,” said Shullman, of the

Atlantic Council. “They knew

what message they were sending

by choosing to do it today — as

opposed to a week ago.”

Lee reported from Tokyo, and Kim

reported from Seoul.

KIMIMASA MAYAMA/EPA-EFE/SHUTTERSTOCK

President Biden exits Marine One at Japan’s Yokota Air Base on Tuesday. An administration official

condemned the Chinese-Russian military exercise, their first together since the Ukraine invasion.

BY ELLEN NAKASHIMA,

MICHELLE YE HEE LEE

AND MIN JOO KIM

Russia and China flew stra-
tegic bombers over the Sea of
Japan and East China Sea while
President Biden was in Tokyo on
Tuesday, their first joint military
exercise since the invasion of
Ukraine and a pointed signal to
the administration as it seeks to
solidify regional alliances amid
the growing strategic partner-
ship between Moscow and Bei-
jing.
The White House promptly
condemned the air exercise.
“This ... shows that China contin-
ues to be willing to closely align
itself with Russia, despite the
brutality that Russia is commit-
ting in Ukraine,” said a senior
Biden administration official,
who spoke on the condition of
anonymity because of the mat-
ter’s sensitivity.
The two countries have con-
ducted joint exercises before, but
“this is the most significant form
of cooperation by their militar-
ies” since Feb. 24, when Russia
invaded Ukraine, the official said.
The exercise occurred as Biden
concluded his five-day trip to
Seoul and Tokyo to deepen stra-
tegic ties in a series of meetings
that also included the leaders of
Australia and India. Japan, India,
Australia and the United States
make up the Quadrilateral Secu-
rity Dialogue, or the Quad. Al-
though their partnership is con-
sidered informal, Beijing views it
as a strategic effort to contain
China.
Economic and geostrategic

Joint drills

by Russia,

China elicit

U.S. rebuke

Air exercise takes place

over Sea of Japan during

Biden’s Tokyo visit

Thursday, May 26 at 1:00 p.m.

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