Moscow – Ukraine has missed the Dec. 20 deadline for paying its $3 billion Eurobond debt to Russia, setting stage for court litigation. While Ukraine’s failure to pay means that it’s in default, it’s not going to sharply change the nation’s economic outlook.
Last month, the International Monetary Fund softened its rules to allow it to disburse aid to nations that failed to pay its debts to other countries, the move made in anticipation of Ukraine’s default on its debt to Russia.
The change in rules means that the IMF will likely continue to provide aid to Ukraine under a $17.5-billion loan package spread over three years. Commercial creditors already have shunned Ukraine, whose economy has been ravaged by a nearly two-year war with Russia-backed separatists in the east, so the default wouldn’t change much in that regard.
Ukraine’s economy is estimated to sink 12 percent this year and its currency reserves currently stand at $13 billion, enough for covering just three months of imports _ far less than required by IMF standards.
Russia bought $3 billion in Ukrainian bonds in December 2013, weeks after then President Viktor Yanukovych shelved a trade pact with the European Union in favor of closer ties with Russia. His move triggered a wave of massive street protests, which eventually forced Yanukovych out of power in February 2014. The Kremlin denounced his ouster as a coup and accused the U.S. of sponsoring it. Russia responded by annexing Ukraine’s Crimean Peninsula in March 2014, and a pro-Russia insurgency flared up in eastern Ukraine the following month. Fighting there has claimed more than 9,000 lives and devastated Ukraine’s industrial heartland.
With its economy devastated by two years of war and political turmoil, Ukraine has negotiated a restructuring deal with foreign creditors involving a 20-percent writeoff of its principal debt that reduced it from $19 billion to some $15.5 billion.
The deal struck in August included Ukraine’s commercial creditors led by Franlin Templeton, a leading U.S. investment firm. Ukraine’s Prime Minister Arseniy Yatsenyuk has pushed Russia to accept the terms of the restructuring deal, but Moscow has rejected the idea, insisting that the Ukrainian Eurobonds it purchased represents an official, sovereign debt unlike commercial debts held by private investors.