You're reading: Moscow threatens Kyiv with $3 billion loan recall ahead of peace talks

Russia’s Finance Minister Anton Siluanov accused Ukraine of breaching the conditions of a $3 billion Russian loan today ahead of a new round of peace talks in Germany's capital on Jan. 12.

The foreign ministers of Ukraine, Russia, Germany and France will meet in Berlin to discuss the war in eastern Ukraine, which has been simmering since a ceasefire was agreed on Sept. 5. While there has been a notable decrease in heavy shelling, the agreement has failed to stop daily casualties from small arms fire. Ukrainian
defence officials reported two servicemen killed and 20 wounded in the past 24
hours.

While the Russian-instigated war has eased, the economic war between Russia and Ukraine’s Western allies seems to be intensifying. Western nations have responded to Russia’s aggression against Ukraine with a series of financial restrictions on individuals and businesses.

U.S. and European Union sanctions against Russia have hit the country’s economy, but the energy-export dependent state is
reeling from tumbling Brent oil prices, down to $50.11 per barrel from $90
per barrel in early November. The ruble climbed to around 62 to the dollar on Jan. 9, despite government intervention following a sharp devaluation in mid-December.

Today Fitch international
ratings agency announced they had downgraded Russia’s credit rating to negative BBB,
one step away from a junk rating.

Now Russia looks to be retaliating in kind, exploiting Ukraine’s
economic weakness in an apparent effort to strengthen Foreign Minister Sergei
Lavrov’s hand at the bargaining table, with Moscow seemingly intent on maintaining leverage over its former Soviet republic.

“Ukraine breached conditions governing the provision by Russia of a $3
billion loan,” Finance Minister Siluanov told Russian news agency ITAR-TASS
earlier today.

“Russia has every reason to demand early repayment of the $3 billion
loan, but the decision has not been made yet.”

The money was loaned to the government of former Ukrainian President Viktor Yanukovych, ousted in February 2014 after he stole millions, possibly billions, of dollars from state coffers. It was the first tranche of a $15 billion bailout abandoned after Yanukovych fled the country.

A clause in the loan agreement enables Russia to demand the loan be
repaid early if Ukraine’s total state debt exceeds 60 percent of its gross domestic product. By the end of 2014 Moody’s ratings agency estimated
Ukraine’s debt at 72 percent of GDP, although this has yet to be confirmed by
government figures.

The threat of recalling the loan will come as a blow to Ukraine’s war-weakened economy, which the EU has already attempted to stabilise with an 11 billion euro loan. The bloc also helped to negotiate a $17 billion loan to Kyiv from the International Monetary Fund.

On Jan. 8 the
European Commission proposed a further 1.8 billion euro loan, but Russia’s latest threat may make that
support more costly still. Nevertheless, European diplomats have made clear their lasting
commitment to Ukraine.

“Ukraine
is not alone,” said European
Commission President Jean-Claude Juncker after agreeing the loan proposal.

“Europe stands united behind Ukraine and the reform agenda of the new
government. Our actions speak louder than our words. The European Union has
provided unprecedented financial support and [Thursday’s] proposal proves that
we are ready to continue providing that support. This is European solidarity in
action.”