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Will Regime Be Able To Pay Its Debts?

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Will Regime Be Able To Pay Its Debts?

Minsk is in serious trouble because of sanctions.

One of the key elements of the fifth package of sanctions, introduced the other day by the U.S., are sectoral sanctions against the Belarusian state debt. What are they?

The U.S. Treasury Department's sanctions unit, OFAC, banned U.S. citizens and organizations from providing new loans to the Ministry of Finance and the Development Bank of Belarus (owned by the government) or buying new bonds of both state organizations for more than 90 days. These restrictions apply to loans and bonds in any currency.

Why did the U.S. impose sanctions against the national debt of Belarus and how will this work? The newspaper "Belarusians and the market" discussed the issue with financial analyst at Alpari Eurasia Vadzim Iosub.

- Dollar is the official currency of the United States, transactions in dollars are ultimately served by American banks. From the point of view of the United States, if someone sells something for dollars, buys for dollars, attracts or repays dollar debts, makes any dollar transactions - it means they are using the services of the American financial system, the banking system. Americans believe they have the right to decide for themselves: who they render services to and who they do not. And some part of the Belarusian state debt is handled in dollars and serviced in dollars, - explains the financial analyst.

What is in the new package of sanctions

- Very often, the U.S. sanctions are read in different ways.

U.S. individuals and legal entities can't buy new Belarusian government debt in dollars - everything is clear there. But what about when it comes to selling debt to other individuals, not Americans, even selling debt on the domestic market?

For example, the Ministry of Finance sells the dollar debt to Belarusian banks - this practice is common in the country. But in any case, the U.S. banks are engaged in conducting and servicing these operations, the dollar payments. That is, it is impossible to make a dollar payment without involving an American bank. Just as it is impossible to make a payment in euros without a European bank, and a payment in Russian rubles without a Russian bank. All these payments are made through the correspondent accounts in the corresponding currency, and all the correspondent accounts in dollars are handled by U.S. banks.

Americans are forbidden to buy Belarusian bonds - it is spelled out clearly and distinctly. But it can also be read that American banks are not allowed to service any operations with Belarusian state debt. And this means that it is impossible to issue dollar bonds in principle, be it for placing in Europe, in Russia or in the domestic market.

What to do with the old debt

According to the Ministry of Finance of Belarus, currently $2.64 billion of domestic government bonds, or about 60% of total domestic debt, is denominated in U.S. dollars. The Development Bank has another $115 million in dollar-denominated bonds in circulation, according to its materials. The Ministry of Finance's last dollar-denominated bond issue was offered at the end of September for $17.4 million.

A logical question arises: will the sanctions affect the old Belarusian state debt

- If you read it verbatim, we are talking only about new debts: there is no formal prohibition on servicing old debts or making payments to repay old debts. The prohibition refers to the issue of the new debt.

However, there is a nuance to the issue of the old debts. The subtlety is that while there is no direct prohibition on paying and servicing old debts, in practice there can be very serious difficulties, problems with the payment of old debts. How does this work?

For example, there will be a repayment of previously issued bonds. Earlier such a payment would have been made without any problems, but now an American bank can overwhelm the payer in the RB with a dozen of additional questions - the bank needs guarantees that it does not violate the sanction regime. Practice shows that if a payment is made, the servicing bank has a question: is this payment subject to sanctions? In theory, the bank can handle this payment for a month, six months, a year, or as long as it wants.

Is there a way out?

- A possible way out is to attract debts in other currencies, for example, to attract money in Russian rubles. So far, there are no big problems in raising debt denominated in Euros. Why? When we are talking about payments in dollars, then we have correspondent accounts in American banks, and when we are talking about euro payments, we have correspondent accounts in European banks. But these could be European subsidiaries of Russian banks, for example the Russian VTB bank has a large subsidiary in Frankfurt. As long as transactions in euros are not banned at the level of the European Union, in theory, the Belarusian authorities can carry out transactions in euros through the European subsidiaries of Russian banks. But this is only possible until this is explicitly forbidden for the European banks. If the European Union explicitly bans such operations, the European subsidiaries of Russian banks will not risk their licenses.

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