Yellen: It is not legal for the US to seize official Russian assets

BONN, Germany, May 18 (Reuters) – The United States has no legal authority to seize Russian central bank assets frozen due to its invasion of Ukraine, Treasury Secretary Janet Yellen said on Wednesday. , but are discussing with US partners ways to make Russia foot the bill for Ukraine’s post-war reconstruction to begin.

Yellen also said the special license granted to allow Russia to make payments to its U.S. bondholders is unlikely to be extended when it expires next week, leaving Russian officials with a rapidly shrinking window to avoid its first default on foreign debt since the 1917 Russian revolution.

Russia’s February 24 invasion of Ukraine is high on the agenda of the Group of Seven finance ministers’ meeting this week, and Yellen is calling for increased financial support for the beleaguered country. war, which, according to the World Bank, suffers from $4 billion in weekly physical expenditure. damage.

“I think it’s very natural that given the huge destruction in Ukraine and the huge reconstruction costs they will face, we would look to Russia to help pay at least some of the price that will be involved” , Yellen told reporters here. meetings this week.

Some European officials have advocated that the EU, the United States and other allies seize some $300 billion in Russian central bank foreign currency assets frozen by sanctions. The assets are held abroad, but remain under Russian ownership. Read more

“As we begin to look at this, it would not be legal now in the United States for the government to seize these” assets, Yellen said. “It’s not something that’s legally allowed in the United States.”

US Treasury officials have also expressed concerns about setting precedents and eroding other countries’ confidence in holding their central bank assets in the United States.

At the G7 meeting in the Bonn suburb of Koenigswinter, Yellen intends to focus on Ukraine’s more immediate budgetary needs, estimated at $5 billion a month. On Tuesday, she urged US allies to step up financial support, while a German government official said ministers would pledge $15 billion in new budget aid. Read more

RUSSIAN DEFAULT RISKS

Russia holds some $40 billion in international bonds and has so far managed to meet its obligations and avoid default thanks to a temporary Treasury license granting an exception allowing banks to accept payments denominated in US dollars. Russian Ministry of Finance despite crippling sanctions against Russia. .

The license expires on May 25, with the next major payment due that day.

On Wednesday, Yellen said the Treasury is unlikely to extend the exemption. This could lead to a technical default if Russia then resorted to trying to pay in rubles rather than dollars, as required by the terms of the bonds.

“There hasn’t been a final decision on this, but I think it’s unlikely to continue,” Yellen said, adding that a technical fault wouldn’t change the current situation regarding access. capital Russia.

“If Russia is unable to find a way to make those payments, and it technically defaults on its debt, I don’t think that really represents a significant change in Russia’s situation. They are already cut off from global capital markets.

ECONOMIC THREATS

Yellen pointed to a number of threats to the global economy ahead of the G7 meeting, including fallout from the war in Ukraine and sanctions on Russia, which have driven up energy and food prices, and a slowdown in the Chinese economy due to strict containment measures related to COVID-19. But she said she did not think a “synchronized” recession in the United States, China and Europe was likely.

Yellen said China’s zero-tolerance policies appear to be hampering the production of goods, compounding supply chain difficulties that have driven up prices and are contributing to slowing its growth.

“As one of the largest economies in the world, China’s economic performance really impacts growth around the world,” Yellen said, adding that the Treasury is watching Beijing’s policy responses closely. Read more

She confirmed that she was advocating within the Biden administration for the removal of certain US tariffs on Chinese products that “are not very strategic” to limit pain for US consumers and businesses. Read more

She said G7 financial leaders will discuss new sanctions against Russia for its war in Ukraine and discuss “how best to design them to protect the global economy from adverse effects while inflicting maximum damage on Russia.” “.

Reporting by David Lawder in Bonn and Rami Ayyub in Washington; Written by Dan Burns and David Lawder Editing by Chizu Nomiyama

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