MOSCOW: Russia said Wednesday it had been forced to make foreign debt payments on dollar-denominated bonds in rubles, in a new blow to its efforts to avoid a sovereign default amid unprecedented Western sanctions over the Ukraine conflict. The announcement came on the 42nd day of Russia's military campaign in pro-Western Ukraine, with thousands killed and more than 11 million displaced as refugees or within the country in the worst refugee crisis in Europe since World War II.

The West has pummeled Russia with debilitating sanctions since President Vladimir Putin sent troops to Ukraine on February 24. On Wednesday, the United States and EU were readying new sanctions after Ukrainian President Volodymyr Zelensky showed the UN Security Council harrowing images of violence. The Russian finance ministry said on Wednesday that it had been forced to repay $649.2 million to foreign debt-holders in rubles after a correspondent bank refused to execute payment instructions.

"A foreign correspondent bank refused to execute instructions for the payment" of debt on two bonds on April 4, the ministry said in a statement. "In order to fulfil the state debt obligations of the Russian Federation," the finance ministry said it "was forced to attract a Russian financial institution to make the necessary payments." The finance ministry did not specify if the ruble payment had been accepted. The United States from Tuesday barred Russia from making debt payments using funds held at American banks, ramping up the economic pain in Moscow. Analysts say the risk of a debt default is rising, and major ratings agencies have downgraded the country.

'Putin impoverishing Russia'

The Kremlin denied suggestions that Russia could default on foreign debt payments. "Russia has all the necessary resources to service its debts," Kremlin spokesman Dmitry Peskov told reporters. "There are no grounds for a real default." Timothy Ash, an emerging markets strategist at BlueBay Asset Management, said, however, that it was hard to see Russia avoiding a sovereign default. "Putin is impoverishing Russia for years to come," he said in a note to clients.

"Default might not crash Russian markets and the economy immediately but will have devastating longer term consequences," he said, adding that investment, growth and living standards will be affected. Russia missed payments on domestic, ruble-denominated debt in 1998 amid a broader financial crisis, but last defaulted on its foreign currency debt in 1918, when Bolshevik revolution leader Vladimir Lenin refused to recognize the obligations of the deposed tsar's regime.

In recent years, Moscow amassed about $600 billion in foreign currency reserves, including gold, largely from oil and natural gas sales. The government owes about $40 billion in dollars or euro-denominated debt, though only half of that is held by foreign creditors-a relatively small amount given the size of the economy and its oil earnings. The sanctions also sparked an exodus from Russia of hundreds of foreign companies, which have mothballed their subsidiaries in Russia or announced full pullouts.

US officials expect the sanctions to plunge Russia, which has heavily relied on imports of manufacturing equipment and consumer goods, into deep recession. Ordinary Russians have been bracing for tough times, stocking up on food and other supplies as inflation soars. New car sales sank almost 63 percent in Russia in March year-on-year, industry data showed Wednesday, with Russians less likely to buy imported cars after the ruble plummeted in value. Only 55,129 cars or light commercial vehicles were sold last month, a 62.9-percent drop from the same period last year, said the Association of European Businesses. - AFP