Lavrov: U.S. admits lack of prospects of restoring Ukrainian solvency

(Interfax – November 7, 2015)

By having refused to guarantee Ukraine’s debt as part of Russia’s proposal to restructure it, the United States effectively admitted the absence of prospects of restoring its solvency, Russia’s Foreign Minister Sergei Lavrov said in an interview with Interfax.

“We were ready to restructure Ukraine’s $3 billion debt at much more advantageous terms than those asked of us by the IMF [International Monetary Fund]. But these terms, which extend the repayment not by one but three years and in equal installments, were certainly tied to these payments by Ukraine being guaranteed by the EU, the U.S. and the IMF or a first-class international bank. We were denied it. By officially rejecting the proposed scheme, the United States thereby subscribed to not seeing any prospects of Ukraine restoring its solvency,” Lavrov said.

“This reform, which they are now trying to implement, designed to suit Ukraine only, could plant a time bomb under all other IMF programs,” Lavrov said. “Essentially, this reform boils down to the following: since Ukraine is politically important – and it is only important because it is opposed to Russia – the IMF is ready to do for Ukraine everything it has not done for anyone else, and the situation that should 100 percent mean a default will be seen as a situation enabling the IMF to finance Ukraine,” the minister said.

This December Ukraine must repay the $3-billion Eurobonds that were allocated in Russia’s favor in 2013. Kyiv offered Moscow to restructure this issue under the same terms as for the holders of commercial bonds, Russia refused to discuss this option, insisting that the debt is sovereign, not commercial. In November, Russia proposed its option: a three-year deferral of the repayment ($1 billion to be paid each year in 2016-2018), provided that the debt is guaranteed by the U.S., the European Union or an international financial institution. Last Saturday the Russian Finance Ministry said that the U.S. government had officially refused to guarantee the Ukrainian debt.

The IMF Executive Board is meeting on Tuesday to consider changes to the IMF policy with respect to countries with a debt to official creditors. The IMF’s current lending policy rules out the possibility of providing financing for a member state which has a debt to an official creditor. Removing this restriction will enable the IMF to continue disbursements to Ukraine under the current extended-financing program, even if Kyiv defaults on its debt to Russia for the $3 billion Eurobonds issued in 2013.