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United States

US warns Russian debt sanctions could destabilise global financial markets 

PUBLISHED : Saturday, 03 February, 2018, 3:18am
UPDATED : Saturday, 03 February, 2018, 7:36am

The US Treasury Department has warned that expanding sanctions to new Russian sovereign debt and derivatives could destabilise financial markets and spread beyond Russia to have “negative spillover effects into global financial markets and businesses.”

The remarks came in a Treasury memo that was ordered by Congress in August and obtained by Bloomberg on Friday. Though the report was submitted to Congress on Monday, its findings had not previously been disclosed.

The report – and the prospect of new sanctions – had cast a shadow on Russian debt markets since Congress passed the law requiring a series of sanctions-related studies, including a separate list identifying Russian billionaires and oligarchs close to President Vladimir Putin.

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Treasury Secretary Steven Mnuchin told senators at a hearing on Tuesday that the reports would be followed by fresh sanctions on Russia as punishment for its interference in the 2016 presidential election.

Mnuchin has faced criticism over how his department handled the billionaires list, which contained the names of 210 people.

The Treasury confirmed that it used a Forbes list of wealthy Russians, along with other public sources, to compile it. Democrats said the reports should have been accompanied by new sanctions.

Russian investors expressed relief on Tuesday when the Treasury didn’t initially release details of the report on Russian government debt.

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The nation’s borrowing costs sank as investors took the lack of detail on the debt report and no announcement of penalties for anyone on the so-called oligarchs list as a sign that Washington was not ready for tougher sanctions.

The credit rating company Moody’s Investors Service said that it would consider raising Russia to investment grade even if the nation is burdened with the kind of penalties that have curbed Venezuela’s ability to finance its debts.

Moody’s put Russia on positive outlook last week, setting it on course for a possible rise out of junk status in the next 12-18 months.

The US law required the report on potential sovereign debt sanctions be unclassified, but allowed a “classified annex.” It was submitted to Congress on Monday but no portion was made public.

A Treasury spokesman on Thursday declined to comment on why the department didn’t make the unclassified report public.