Wednesday, June 10, 2015

Ukraine warns of debt moratorium

Shawn Donnan in Washington

Ukraine could stop paying its sovereign creditors within weeks if they do not agree to a debt restructuring, the country’s finance minister said on Wednesday, offering a provocative option over one of the country’s economic problems amid signs of a deadlock in negotiations.

The government in Kiev and the International Monetary Fund have set the end of this month as a target to agree on a restructuring of Ukraine’s $70bn in sovereign debt aimed at saving it more than $15bn in debt payments over the next four years.

Finance minister Natalie Jaresko told reporters in Washington that while she was ready to sit down with creditors at any time, the government could not wait much longer.
She cited a law passed by parliament last month that would allow the government to unilaterally declare a debt moratorium.

“I can’t wait until the end of the summer and do nothing,” she said. “I don’t think we have that much time . . . I would have to use other tools to reduce the pressure on the balance of payments, [including] a moratorium.”
Speaking to the FT afterwards she confirmed that she saw the debt moratorium as a viable option. “That is one of the options,” she said.


Ms Jaresko said the current proposal from creditors would force the government to withdraw $8bn from the central bank’s foreign exchange reserves and use that to pay down some of its debts. But that was not an option as it would be illegal under Ukrainian law, she said.

Ukraine had made a counterproposal but she refused to disclose what that was. Any deal would have to meet three criteria agreed with the IMF, she said: a $15.3bn reduction in debt servicing costs over the next four years, a lowering of Ukraine’s debt load to 71 per cent of GDP, and a guarantee that the government’s financing costs in the future would not go above 10 per cent of GDP.

“They are the only targets that will bring us back to a reasonable level of debt sustainability,” she said.
The creditors had a “moral imperative” to reach an agreement, she said, particularly as the debts were the result of business they had done with the previous government, which she called a “dictatorship”.

“It’s better for us all to come to an agreement now specifically on a restructuring that will let Ukraine rebuild its economy,” Ms Jaresko told reporters.

The stand-off with creditors comes as Ukraine nears an agreement with the IMF over the fund’s review of the government’s progress on reforms. A staff level agreement was likely to be completed next week after the parliament in Kiev passes a law on central bank independence and the government meets two other final requirements, Ms Jaresko said.

The IMF has in the past insisted that an agreement between Kiev and its creditors on a debt restructuring would be critical to a bailout moving forward. But in recent weeks it has started to soften its line.

On Tuesday, David Lipton, the first deputy managing director of the IMF, indicated the fund would be prepared to disburse its next tranche of the bailout to Kiev even if the debt discussions had not been completed.

What is helping the IMF’s case is what fund officials say has been a strong record of implementing reforms, progress that stands in stark contrast to the acrimonious discussions now under way with Greece.
We’ve changed the record with the IMF,” Ukraine’s prime minister, Arseny Yatsenyuk, told reporters.





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