Sometimes I think I live in a parallel universe - some of you no doubt think I do.

But just reflecting on two conversations coming out the IMF meetings over the past week around Ukraine.

One theme from D.C. is that the IMF is determined to make private creditors pay in terms of the looming discussion over a further debt treatment for Ukraine when the current two year debt service suspension ends in August. The line from the fund seems to be that the private sector needs to share the burden, as they always typically do in debt distress situations.

The irony there, as I have long argued, is that the Western bondholders community, and actually Western tax payers, seemingly are being made to pay, before the Russian tax payer, given that G7 governments seem to have thrown a protective ring around the $330 billion of Russian sovereign (tax payer) assets (real money) sitting on account in Western bank accounts - burning a hole in the pocket of the gnomes of Antwerp or Brussels, quite literally.


One of the arguments against not touching them is so as not to risk retaliation against Western business with assets now stranded in Russia. That is the assets invested in Russia by greedy Western businesses who made bad investments in Russia - failing to read a long list of Russian malign action against the West dating back since 2008, and Ukraine - but took Putin’s forty pieces of silver. So in effect, when we talk about burden sharing, it is the Western tax payers, and Western private sector creditors (pension funds, and hence pensioners) that are bailing out Russian tax payers and Western businesses invested in Russia.

Another discussion point that came out of D.C. is that the Western official sector is desperate to provide guarantees to equity funds thinking of investing in Ukraine, sufficient to provide 100% first loss guarantees. It’s weird that the official sector seems to be bailing out one set one of investors in Ukraine while bailing in the other.


Typically the equity and fixed income crews are two sides of the same coin, and ultimately the success of the equity crew will depend on Ukraine’s ability to re-access international capital markets cheaply. Not sure that enforcing a painful restructuring on private creditors (which does not move the dial in terms of the bigger financing equation need), while defending the assets of the Russian tax payer and those greedy Western companies invested in Russia, plays very well in terms of sending a longer term message in support of investing in Ukraine.

Note here that private creditors invested in Ukraine - were the good guys, they had invested in Ukraine in the run up to the full scale invasion, helping Ukraine to fund its defence. And likely they will be the same investors needed to lead the private sector contribution to the recovery and reconstruction. And ultimately it is all about exit yield, how any restructuring impacts on the credit risk and pricing/access to markets of the sovereign.

Given Ukraine will have a $500 billion plus reconstruction need post war, the private sector will be an important partner here. So the logic of providing guarantees for private sector investment in Ukraine while aggressively writing down those that already invested in Ukraine needs a bit of thought. For me the starting point still has to be as yet only immobilised Russia. Assets.


Thinking of the order of burden sharing, I would rank who should be paying first for funding the war, and then recovery and reconstruction:

1. Russian tax payer;

2. Western businesses invested in Russia;

3  Western creditors/equity crew invested in Ukraine (pensioners)/Western tax payers;

4. Ukraine.

The above is what should be the order of who pays. But as I see it, the following is the order as is:

1. Ukraine;

2. Western tax payers/Western creditors/equity crew invested in Ukraine;

3. Western businesses invested in Russia;

4. Russian tax payers.

Burden sharing - absolutely,  but I think the starting point has to be

Russia pays first, not last. This is perverse and should be an absolute scandal in G7 countries - the dirty little secret I have previously referred to.

On the issue of debt versus equity investors in Ukraine, I get the new money angle. One solution myself and Alex Garrard previously came up with is future financing rights/instruments, another means to secure more equitable treatment while offering the prospect of cheap new money for Ukraine.

Reprinted from the author’s @tashecon blog! See the original here.


The views expressed in this opinion article are the author’s and not necessarily those of Kyiv Post.

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