Named Western assets that Russia will be able to take away after confiscating its frozen funds

A bill to transfer frozen Russian assets to Ukraine was approved by the US Senate Foreign Relations Committee last week. The leadership of the European Union, in turn, plans to seize profits received from Russian assets, although this step is illegal from the point of view of international law. The former head of the World Bank, Robert Zoellick, called the confiscation of Russian assets “elegant justice,” and the official representative of the Russian Foreign Ministry, Maria Zakharova, called it “robbery.” How our country can respond if the worst-case scenario happens, and who will suffer more from confiscation, Maxim Osadchy, head of the analytical department of BKF Bank, told MK.

— This week, news poured in like a cornucopia about the intention to confiscate Russian assets frozen in the West in favor of Ukraine. Where does all this excitement come from?

— The fact is that at the end of 2023 – beginning of 2024 a situation arose when the prospects for further financing of Ukraine from both the United States and the EU became very vague. The United States suspended supplies to Ukraine due to a lack of budgetary funds for these purposes; the “magic pot” for helping Kyiv broke down. And in the EU, a 4-year plan to provide assistance to Ukraine in the amount of 50 billion euros does not pass due to Hungary’s veto.

In order to obtain foreign funding, various schemes are being invented, even such exotic ones as the idea of ​​Ukraine issuing “reparation” bonds secured by Kyiv’s claims against Moscow. Such bonds could be called “bearish”, keeping in mind the Russian proverb “sharing the skin of an unkilled bear.”

— Without financial assistance from the West, Ukraine will quickly use up its international reserves, so plans to confiscate Russian reserves are being increasingly discussed?

— Yes, as of January 1, 2024, Ukraine’s international reserves reached $40.5 billion, while Ukraine’s budget deficit for 2024 is planned at over $43 billion. If Western financial assistance is terminated, these reserves could be used to maintain the hryvnia, pay for imports and pay off debts. Due to limited reserves, currency interventions by the National Bank of Ukraine may be insufficient to stabilize the hryvnia. For reference: in 2022, net sales of foreign currency by the National Bank of Ukraine amounted to $23.1 billion, in 2023 – $2.5 billion. So, without Western help, Kiev’s liquidity cushion will very soon be eaten away.

— It turns out that Ukraine itself can no longer do anything to ensure its financial stability?

— Some options still remain. For example, it may increase the attraction of debt financing on the international market, but this will lead to an increase in the cost of debt servicing. The yield on Ukrainian dollar Eurobonds maturing in 2034 reached 24%. Such high yields are caused by the high probability of sovereign default. Possible consequences of the lack of foreign financial assistance are an increase in taxes and a decrease in social spending, which can cause social protest in the country.

— But neither the West nor Kiev want such a scenario?

— Of course, the West is not interested in the defeat of Ukraine, so various ways are being taken to circumvent these obstacles, in particular, attempts are intensifying to confiscate seized Russian assets, or at least accumulated interest on these assets. The size of these assets is about $300 billion. However, these attempts are met with the mirror threat of confiscation of assets of “unfriendly” countries under Russian jurisdiction for a similar amount.

— What can Russia confiscate from Western countries?

— Banks and enterprises located on Russian territory but owned by unfriendly non-residents act as “human shields” against the confiscation of Russian assets. For example, the Russian bank of the Austrian financial group Raiffeisen Group, which became extremely profitable under sanctions, or a bank owned by the Italian group UniCredit.

— What other assets of non-residents can be seized?

— In the information and analytical material of the Bank of Russia “On the development of the banking sector of the Russian Federation in March 2023” it was stated that funds in type “C” accounts were transferred from the National Settlement Depository (NSD) to the Deposit Insurance Agency (DIA) in the amount of 0 .5 trillion rubles. (Type “C” account is a special account that can be opened for a non-resident investor, that is, a foreigner, in a bank, broker or depository. It can only be replenished in rubles. It is impossible to withdraw funds from it, you can only send money to a limited range of purposes such as paying taxes or purchasing OFZ – editor’s note)

According to the Central Bank, as of October 1, 2023, the volume of Eurobonds of the Russian Federation owned by non-residents amounted to $15 billion. In addition, investments of non-residents in OFZs amounted to 1.5 trillion rubles as of December 1, 2023. It can be assumed that most of these papers are blocked because they belong to unfriendly non-residents.

— In the end, how much can Russia confiscate Western assets for?

— According to the latest available data, the volume of direct investment from unfriendly countries in the Russian economy at the end of 2022 amounted to $288 billion. At the same time, taking into account the ban on the withdrawal of funds from the country by unfriendly non-residents, the amount could have increased significantly due to the transfer of these funds to type “C” accounts.

— It turns out to be approximately the same $300 billion that the West froze from us?

– Yes, in fact there is parity, that’s why they “want and are hesitant” to confiscate our assets. However, it should be remembered that attempts to confiscate Russian frozen assets intensify the processes of deglobalization and fragmentation of the international financial space. They contribute to the de-dollarization and de-euroization of countries that are in the “risk zone” and lead to an increase in the popularity of alternative currencies, primarily the yuan, in international payments. So in this financial battle, the main winner may go to a third party – China.