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Russia Blasts 'Politicized' Rule Change IMF Mulling For Ukraine

Russian Finance Minister Anton Siluanov
Russian Finance Minister Anton Siluanov

Russia's finance minister expressed concern about a possible rule change by the International Monetary Fund that would enable it to keep lending to Ukraine even if Kyiv defaults on its debt to Russia.

"Russia does not want Ukraine to be left without financial support," Anton Siluanov said on October 30, but Russia is suspicious of the "hastiness" of the rule change at the IMF.

"We are concerned that the changes in the policy of the fund are forced in the context of a very politicized issue of restructuring of the Ukrainian debt," he said.

The IMF has said it is considering easing a long-standing rule against lending to countries in default in "carefully circumscribed circumstances" to keep Ukraine's $17.5 billion bailout package alive.

Ukraine, running short of cash, has sought to restructure its $3 billion debt to Russia the same way it has rescheduled its privately held debt, but Russia has refused to go along.

Moscow -- which is also running short of cash and reserve funds -- insists it should get full repayment on schedule by the end of the year.

Ukraine must make a critical payment on the debt to Russia next month. The IMF rule change would increase the likelihood of Ukraine defaulting on that payment, a possibility Ukraine has admitted it is considering.

Under its current rules, the IMF is not allowed to lend money to a country when it is in default on debt to an "official" lender such as another government.

Under those rules, if Kyiv defaults on the $3 billion Ukrainian Eurobond bought by Russia, the IMF would have to cut off its credit, even though the country is reeling from a deep economic recession and pro-Russian insurgency in the east.

The rule change would allow the IMF to keep lending to Ukraine as long as Kyiv has made a "good faith" effort to renegotiate its debt with Russia.

While Russia objects to the rule change, Siluanov said that even if the IMF went through with it, Ukraine would not meet the new criteria.

"Ukraine has not carried out such negotiations with Russia," he said.

A meeting between Siluanov and Ukraine's finance minister earlier this month failed to produce any agreement on restructuring the debt because of Russia's objections to changing the terms.

Siluanov said Kyiv at the meeting refused to consider any alternatives apart from equating Ukraine's debt to Russia with its debt to private investors.

Under pressure from the IMF, Ukraine and its private creditors reached an agreement this summer that wipes out $3.6 billion in debt and reschedules repayment on $8.5 billion.

In a statement October 29, the Ukrainian Finance Ministry said that creditors involved in that debt restructuring should expect to receive new Ukrainian sovereign securities on November 12.

Arguing that its debt to Russia should be considered a commercial loan rather than a formal agreement between the two countries, Ukraine had given Russia until October 29 to either accept the same restructuring terms or face a "legal war" in court.

The $3 billion loan was given by Moscow to Ukraine's former President Viktor Yanukovych in late 2013 in what Kyiv now says was essentially a bribe to get him to ditch a deal for closer ties with the European Union.

Yanukovych's decision to dump the EU agreement sparked protests that eventually led to his ouster and unleashed a chain reaction of events that has included Moscow's seizure of Ukraine's Crimea Peninsula and a pro-Russian insurgency in the east.

With reporting by AFP, Reuters, TASS, and Interfax
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