Kiev's Financial Woes
Ukraine Faces Its Western Creditors

Debt talks appear to have stalled in Ukraine weeks ahead of a June deadline. The Ukrainian government released a strongly-worded statement lambasting its creditors for their opacity and intransigence. At stake is whether the creditors will be forced to take a haircut on their holdings. The Financial Times has more:

Negotiations between international investors and the government appear to have reached deadlock, with a group of the country’s largest investors declaring earlier on Tuesday that they were “ready and willing to support a prudent debt restructuring with Ukraine” but had had “no substantive engagement” from the government. […]

Claiming that the creditor committee refused “despite numerous requests” to reveal its membership, the [Ukrainian] finance ministry stressed that it and debtholders needed by June “to agree on a sustainable debt level and debt service objectives meeting the targets” of an International Monetary Fund programme granted earlier this year.

The ministry added: “Even though Ukraine and the IMF have repeatedly said that the three targets for the debt operation (liquidity, sustainability and payment capacity) have to be met, the committee in its public statements focuses exclusively on the liquidity aspect, and refuses to acknowledge the debt sustainability objective.”

The committee of creditors declined to comment on the finance ministry statement.

The June deadline was set by the IMF, which is to hold its first review of Ukraine’s finances on that date. By then the IMF expects Ukraine to plug a $15 billion hole in its budget, as well as to restructure its debt obligations. Failure to do so could jeopardize the disbursement of its $17.5 billion loan program, as well as up to $15-$20 billion in debt forgiveness.

There are both bureaucratic and political limits to how much help the West is going to give Ukraine, and Kyiv may have found them. Ukraine’s financial situation coupled with the sluggish pace of reform may be so bad that the West either won’t have the will to continue to help, or else it won’t be allowed to according to the rules of IMF lending.

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