Russian Finance Minister Anton Siluanov said Ukraine may be obliged to pay off early $3 billion of debt to Russia maturing in December.
This is
country’s biggest payment on the 2015 debt horizon, not counting the gas bills.
It is comparable to a projected
budget deficit this year.
Ukraine
violated the requirements of a eurobond issuance that Russia subscribed, according to Siluanov.
It implied keeping the public debt to gross domestic product ratio under 60
percent, he said.
Meanwhile,
Moody’s, a debt worthiness evaluator, expects the ratio to have reached 70
percent already.
However,
this contradicts an earlier statement by the Russian leader Vladimir Putin, who
said
that his country won’t ask Ukraine for an early debt settlement during the
G20 summit in Australia in November.
The $3
billion eurobond with an interest of 5 percent was issued in December of 2013, at
a time of the EuroMaidan Revolution, when desperate government of
then President Viktor Yanukovych and Prime Minister Mykola Azarov turned to Putin
for financial assistance.
Independent
foreign investors at that point expected money parked in Ukrainian debt to
yield at least 30 percent of return to be attractive for them, given the
political risks associated with the country. But Putin was ready to accept
Yanukovych’s decision to turn down the association agreement with the European
Union as the best interest rate.
The
deal included a $15
billion bailout accompanied by cheaper prices for Russian gas, $268.5 per
thousand cubic meters which was two thirds of what Ukraine had been paying
before. However, after lending $3 billion, Kremlin refused to provide more money due to the ongoing revolution in Kyiv.
Since
then, Ukraine’s Finance Ministry has made two coupon payments for this piece of
debt, $73.3 million in June and $75.5 million in December. Next year budget
includes servicing it further.
However,
many argue Ukraine shouldn’t pay off the money borrowed by the corrupt regime
of Yanukovych as it should be recognized as an odious debt, a
borrowing that is mismanaged by the country rulers and, therefore, shouldn’t be
paid back.
“Ukraine
is experiencing huge losses due to Russia’s occupation of Crimea and war in the
Donbas region,” commented Ivan Krulko, a member of parliament’s budget
committee that is preparing the amendments to this year public budget. “We
should account these losses in our debt relations with Russia.”
“Ukraine
will keep servicing the $3-billion debt, but we will consider the political
situation,” said Krulko, who serves in Verkhovna Rada with ex-prime
minister Yulia Tymoshenko’s Batkivshchyna faction.
Georgetown
University law professor Anna Gelpern recommends Ukraine to refuse servicing
this debt and treat it as “odious,” she wrote in a paper for the Washington
D.C.-based Peterson Institute for International Economics in August.
She
said, the British courts, that regulate this particular eurobond issue, should
refuse to enforce the contracts on it. However, legal preparations for such cases is always a big chunk of work as persuading the judge won’t be easy.
Therefore,
Ukraine’s Finance Minister Natalie Jaresko has to make a hard choice. The image
of an accurate borrower is a valuable asset in the eyes of the globe’s
financial markets, but the budget of a 45-million Eastern European nation is
short of cash due to the military conflict initiated by Russia, a debt
holder and an aggressor.
Kyiv Post associate business editor Ivan Verstyuk can
be reached at [email protected].
