The International Monetary Fund (IMF) says it has decided to provide financing to Ukraine despite the country`s debt on $3 billion in eurobonds bought by Russia.
”The decision to provide financing despite the arrears is not expected to have an undue negative effect on the Fund`s ability to mobilize official financing packages in future cases,” the IMF said in its report released on Monday, October 3.
”Most official bilateral creditors with exposure to Ukraine have supported Ukraine through new financing. These represent the vast majority of the total financing contributions required from official bilateral creditors. Russia is the only official bilateral creditor that has not reached an agreement with Ukraine, but efforts are under way to resolve the arrears situation. Despite taking into consideration Russia`s strong track record of providing contributions in the context of Fund programs (including 17 HIPC Initiative restructurings), in the staff`s view, lending into arrears to Russia is not expected to have an undue negative effect on the Fund`s ability to mobilize future financing packages given the exceptional nature of the current dispute and efforts to resolve this in a timely manner,” the report said.
”It is now important to continue efforts to reach an agreement on the restructuring of Ukraine`s debt held by Russia in line with program parameters,” the IMF said.
Earlier, Russia lodged a suit with the London High Court against Ukraine after it defaulted on paying the principal amount and interest on the $3 billion loan. The fact that the bonds were purchased via the Irish Stock Exchange makes the disbursement a private creditor debt. However, the Russian side insisted that this was an interstate debt, as the buyer was Russia`s state-owned National Wealth Fund.
Ukraine wanted the $3 billion eurobond to be restructured under sovereign and sovereign-guaranteed bonds, but Russia reiterated it did not consider the debt to be commercial.
In the course of negotiations, the Russian authorities insisted on better restructuring terms than those offered to other creditors, which is prohibited by the bond swap memorandum between Ukraine and the bond holders.
Ukraine has restructured the debt under the IMF`s Extended Fund Facility program approved by the IMF Executive Directors in March last year.
In December 2015, the IMF decided that the claim arising from the $3 billion eurobond issued by Ukraine on December 24, 2013, and held by Russia`s National Wealth Fund was an official claim for the purposes of the fund`s policy on arrears to official bilateral creditors.
At the same time, the fund revised its lending policy with respect to debtor countries with payment problems, including Ukraine, enabling the IMF to continue its lending program even in the case of non-repayment of Russia`s loan.
Following Russia`s refusal to participate in the debt swap transaction, Ukraine on December 18 announced a moratorium on any payments of the Russian debt, including repayment of $3 billion, which was due in December 2015. The Justice Ministry was tasked to hire lawyers to defend Ukraine in court. Subsequently, Ukraine`s parliament declared that the moratorium had no fixed term.
According to lawyers and debt market experts polled by UNIAN, the ongoing trial with Russia will be cumbersome and may take several years. Experts also say the trial itself does not pose a threat to Ukraine and a court ruling in Russia`s favor will not be sufficient grounds for instant payment of the debt.
