This article was originally published on Russia Insider: http://russia-insider.com/en/business/imf-dithers-ukraine-defaults-russian-loan/ri11901
by Alexander Mercouris
The issue of the $3 billion loan Ukraine owes Russia is becoming increasingly complicated.
The IMF has in recent days made a series of announcements which everyone knows relate to the Russian loan but which appear to contradict each other.
One is to say that the loan is indeed “public” (“Paris Club”) debt as opposed to “private” (“London Club”) debt.
The other is to change its rules so that it can continue to provide funding to a country if it defaults on its “public” debt provided that country attempts to negotiate a restructuring of that debt in “good faith”.
At the same time IMF officials have made clear that they do not consider Ukraine has made a real effort in “good faith” to restructure the Russian loan. On the face of it, unless Ukraine now does so, despite the change in the rules, IMF support for Ukraine will end if Ukraine defaults on the loan – as it has all but said it will do.
The time left to repay or restructure the loan so as to avoid default is now desperately short and can be numbered in just a few days.
The Russians say Ukraine will be in default on the loan if it is not repaid or restructured by 20th December 2015 – i.e. by this Sunday.
If Ukraine does not repay the loan by that date – or does not make a serious proposal to restructure it – then on Monday 21st December 2015 Ukraine will be in default and the Russians will begin legal proceedings against Ukraine in the High Court in London.
The Russians say they have already prepared the necessary paperwork to start this case.
In light of the IMF’s admission that the debt is “public” debt Ukraine has no real defence if the Russians bring a case as they say they will do.
Though efforts may be made to delay the hearing of the case, in the absence of any real defence it is not impossible the Russians could win a Judgment from the High Court within months or even weeks.
On the face of it this puts an impossible time limit on Ukraine to negotiate a restructuring with the Russians bearing in mind that any proposals they make after Monday could compromise their position further in the court case.
Presumably the IMF intends to allow Ukraine time beyond Monday to negotiate with Russia before IMF funding is withdrawn.
However the IMF has not made clear how much time it is prepared to give or whether Ukraine will continue to receive IMF funding in the interim.
Nor has the IMF explained how providing funding to Ukraine after Monday would be compatible with the fact that a court case against Ukraine was underway, given that this might eventually lead to enforcement action by the Russians (once they obtained a court Judgment) against the bailout funds the IMF is providing Ukraine.
To add to the confusion, Ukraine’s government for the moment refuses to budge from the position it has taken up to now – and which the IMF considers inadequate – that Russia accept as a take it or leave it offer a restructuring of the loan on the same terms as those agreed by Ukraine’s private creditors.
On the face of it, if Ukraine refuses to budge from this position and refuses to sit down with Russia and negotiate, IMF funding will have to stop.
Given what the Ukrainian government has been saying about the Russian loan – with no less a person than Poroshenko saying it was a bribe for Yanukovich – it is going to be politically very difficult for the Ukrainian government to reverse itself and withdraw from this position and negotiate in “good faith” with Russia about restructuring the loan.
Meanwhile, adding to the sense of a looming crisis, there appears to be growing opposition in Ukraine to the Ukrainian government’s austerity budget – insisted on by the IMF as a condition for further funding – with Tymoshenko saying she will never under any circumstances vote for it and nor will her party.
Meanwhile Ukrainian leaders are quarrelling with each other, with fights in the Rada, shouting matches on television and arguments Ukraine’s new Tax Code threatens disaster.
Why did the IMF after making the extraordinary decision to support Ukraine by changing its own rules add a sting in the tail by demanding Ukraine negotiate with Russia in “good faith”?
It is difficult to avoid the feeling that the IMF is split, with the IMF’s bureaucracy and the non-Western representatives of its Executive Board unhappy at the way the IMF is being converted into a tool to serve the geopolitical purposes of the West.
As I have previously explained, there was never any real doubt that legally speaking the debt Ukraine owes Russia is “public” debt.
The various arguments that argue otherwise – or which claim that Ukraine is legally entitled to default on this debt – might look superficially attractive to a non-lawyer. To anyone at all familiar with the law and the practice of the High Court in London they look impossibly farfetched.
The IMF therefore had no real option but than to admit that the debt is “public” debt, and to change its rules to allow continue lending to Ukraine, if it is to continue supporting Ukraine in the event of default as the US and its allies want it to do.
However this blatantly political decision – which not only undermines the IMF’s reputation for impartiality, but which also sets a disastrous precedent that will certainly be invoked in the future – seems to have met with strong criticism from within the IMF bureaucracy and from the non-Western members of the IMF’s Executive Board.
The condition that a state that defaults on its “public” debt can only receive funding if it negotiates a restructuring of its “public” debt in “good faith” was intended as a sop to get the decision through in the face of this criticism with a minimum of fuss.
Apparently the US and its allies on the Executive Board did not realise the IMF bureaucracy – known to be unhappy with the way the IMF is being used to support the West’s Ukrainian project by bailing out a country that is in fact bankrupt – would seize on it to say Ukraine should not get funding because it is not negotiating in good faith.
If the moral of this story is that playing fast and loose with financial rules to achieve geopolitical objectives is a very bad idea, then the political lesson is how fragile political support in the West for its Ukrainian policy has become.
The amount Ukraine owes Russia – $3 billion – may be a make or break amount for Ukraine. For the West it is a pitifully small amount.
A strong, tough minded and determined Western leader – a John Foster Dulles or a Henry Kissinger – who was genuinely interested in winning in Ukraine, would without hesitation pay the money to get the Russians off Ukraine’s back.
Instead, not only have Western governments refused to do this. They have even refused Putin’s cheeky suggestion they provide Russia with guarantees so that Russia can defer payment of the debt.
Presumably Western leaders are not confident Western parliaments would authorise putting up money for such a purpose – which is a lamentable comment on their political weakness.
The result is that rather than risk a public row, the West’s leaders have tied the IMF – and Ukraine – in knots by forcing on the IMF a completely misjudged change in its rules, which however at the moment is not achieving its objective.
The reality is that the political imperative to support Ukraine probably remains sufficiently strong so that Ukraine will probably continue to get funding whatever happens, even if or rather when it defaults on the Russian loan. The question is not really whether but how it will be done. The chaotic and ill-judged way in which it is being done – creating any number of problems for the future – however in the meantime tells its own story.
At the same time it is difficult to avoid a sense of growing exasperation amongst Western leaders with Ukraine.
This is not because of any fundamental change of attitude towards Russia.
It is because Western leaders have gradually discovered what the Russians have known all along – that Ukraine’s Maidan leaders are fanatical, incompetent, corrupt and completely beyond reason.
The result is increasingly despairing articles about Ukraine even from its more fervid supporters – such as this one by Tim Judah in the Financial Times, which contains comments like this
“Last week a farcical brawl followed the decision by the Ukrainian parliament to postpone indefinitely a vote of no confidence in the government.
Further instability is the last thing the country needs but, equally, a government whose credibility has been sapped by allegations of corruption needs a significant reshuffle. It is a tragedy that the nation’s leaders have let it come to this.”
This frustration with Ukraine’s leaders was already obvious during the Minsk negotiations in February and partly explains the cooling of support for Ukraine from France and Germany that was obvious at the recent talks in Paris.
It was also obvious in the exasperated tone of some of US Vice President Biden’s comments to the Ukrainian parliament last week as he tried unsuccessfully to get Ukraine’s leaders to understand – in a speech heavy with ritualistic anti-Russian rhetoric and insulting references to Putin – that a minimal level of decentralisation in keeping with the terms of the Minsk Agreement, and a genuine effort to address the problem of corruption, are actually in their own interests.
As for the IMF, it has apparently delayed payment of the next tranche to Ukraine, not because Ukraine is about to default on its Russian loan, but because Ukraine’s parliament has still not passed a budget and the “reforms” the IMF is insisting on are going nowhere.
Those of us with a better knowledge of Ukraine than the IMF would have told it – if asked – that it could not be otherwise.
And with this recent scene there appears something truly dark and menacing emerging in the Ukraine region. If nothing else (symbolically) it shows very poor taste. Too much white power all round?
“Cow heads hang on Xmas trees in Kiev as protesters descend on parliament (GRAPHIC VIDEO) ”
Sorry, Ukros — however much you pretend otherwise, you have been cowed as few others have, ha!
Ukraine can just sell any remaining claim on interest in Donbas (considering liabilities as well as assets there) to Russia to settle all the debts, which can then become a Russia protectorate, republic, or whatever arrangement it works out with the population there — thereby also saving Kiev from the expense of continually shelling the place.
(If the US was able to buy Alaska and Louisiana, and corporations can sell large holdings to other corporations, it should be no problem to find the proper legal procedures — just hire the right lawyers and judges, in the fine capitalist tradition.)
(And maybe China should think about buying Hawaii.)
” And maybe China should think about buying Hawaii.”
China owns up to 30% of all commercial property in the 20 biggest cities of the US, many major ports, farmland all over the place, etc. Same goes for South America, Africa. The Chinese are very busy getting rid of their $ 1 trillion in US treasuries – they might become worthless soon.
I wonder how many congress critters they own — that’s the key to running the place (as the Israelis well know).
And speaking of Ukronazi pirates and thieves, PM Justin Trudeau’s Liberal Trade Minister Chrystia Freeland came across with a little baksheesh for her Canadian UCC -mafiosi friends in the consulting business…
She is a serious Russophobe and neocon economics proponent. Unfortunately she is a bit too close to the PM.
Yes, with her Ukrainian family provenance this shrill russophobe MP is one to keep an eye on.
How about an export to Ukraine of Maple syrup in cans adorned with patriotic pictures of Stepan Bandera and SS runes?
I wonder also if Trudeau junior is going to pursue kicking Russia out of SWIFT as he declared he would during the election campaign?
Canuckastan is circling the plughole as the tar sands boondoggle implodes, and the mega housing bubble teeters. Certainly serves them right, as total slaves to Israel, Ukrainian Nazi emigres and, of course, Uncle Satan to the south. Trudeau will certainly reveal just who pulls his strings pretty quickly.
IMF Bitch-in-Charge Lagarde ordered to stand trial in France.
The US must be throwing her away. This couldn’t go forward without US approval.
They may be mad that the RMB (Yuan) was added to SDR bucket of currencies.
US dollar lost 8-9% leverage in the bucket to make room for the RMB.
China wanted Min Zhu as the Managing Director when Lagarde replaced Dominique Strauss-Kahn. If she goes down for the count, the Chinese will press again for their man to take the helm.
US will test its control of the US created and controlled institution.
The board showed a bit of independence by voting Ukraine debt to Russia ($3Billion) was sovereign debt and not subject to “haircuts” demanded by the junta kleptomaniacs in Kiev.
However, today, the thieves of Banderastan defaulted and Russia will have to sue in Intl Court to get payment.
It’s my suggestion that the Russians seize Odessa, arrest the Georgian, Saakashvili, running the government there, turn him over to the court that wants him, and keep Odessa as collateral until the loan is paid. Of course, Kiev can never pay the loan, so Odessa becomes Russian.
The USD is in the SDR is virtually unchanged after RMB addition. The big loser was the Euro: They used to have 37.4% and now they have 30.9%…
I agree that Lagarde is on the hit list…for what reason exactly we don’t know..
You may be entirely correct about the US percentages. I was going by info-graphics published on the World Economic Forum website: https://agenda.weforum.org/wp-content/uploads/2015/11/151111-imf-sdr-dollar-pound-euro-yen-pie-chart.png
Which indicated there and in another article or chart the comparison chart with the new percentages.
if that is not correct, I stand corrected by you.
I do not like the idea of more of Ukraine becoming Russian, it would only encourage the radicals. Leave those enclave of russian influence inside of Ukraine so that the central government can never organize itself and cause real hardship for Russia. This is I think the reason why no one is allowing these regions to separate. They are more important if they remain inside of Ukraine to force the government to be reasonable. They are sadly in short supply of reasonableness if that is even a word.
I feel Ukraine is Russian actually. Russia was born in kiev, in my view.
I can’t say I’ve noticed Ukrainian government being force to be reasonable at all, and neither can I say that that’s in Novorossia’s job description. Let the western Ukraine sink into the mud and dig it’s own way out if it can, or the sane people there move east, or it get swallowed up by countries to the west. The world does not need a Ukraine to exist, and it seems the people in that area are not getting any use from it either. Time to let it fade into history, dead from the fascist cancer.
“I can’t say I’ve noticed Ukrainian government being force to be reasonable at all”
” it seems the people in that area are not getting any use from it either.”
Reasonable is generally a projection of that which is deemed within “reason”.
Subsumed within projections of “reasonableness” is a notion of utility.
Both reasonableness and utility are functions of evaluation, evaluation being a function of purpose.
For those immersed in WYSIWYGism subsumptions are often transparent; not perceived since they are passed through un-noticed.
I would suggest that “events” have shown that all activities of opponents have utility irrespective of perceived purpose.
Germany’s Merkel Defends Russian Gas Pipeline Plan
Officials in Brussels and Washington and the government in Kiev are worried that adding an extra 55 billion cubic meters in capacity to the existing Nord Stream pipes would allow Moscow and Gazprom to avoid shipping gas through Ukraine.
Its position as a transit country for Russian gas to the EU has given Ukraine political leverage in its standoff with Russia and the government earns around $2 billion in transit fees every year.
America wants that Russia depends on the Ukrainien blackmail.
It looks like the net effect of the default, combined with ever-expanding debt owed to the IMF and private creditors, will be to bind Ukraine – whatever might be left as a sovereign nation – even more tightly to the West.
There’s more to it, as French “justice” is now on her back again(and there’s definitely a link to the recent IMF U-Turn on Ukraine’s default on Russian lown)
This is related to a financila scandal in which she was implicated over the aribitrage in Favour of Bernard Tapie when he sued French gouvernement for depossessing him of hiw wealth on the Credit Lyonnais bankruptcy (see below):
The affair started a while ago adn so farn justice was off her back. Justice is now back on her, just the next day that this kind of news is published…..
She’s suppose dto stay in office until June 2016 and will be candidaited to her own succession…
or shall i saw WAS candidate to her own succession. I’m curious to see how fast this story will boil up in French media and wether she will have to quit liek DSK did to organise her defense.
Unless another U-Turn on Ukie loan to Russie, justice won’t let her go. Let’s see how the story goes…
As stated, $3 bn is nothing, therefore there must be another reason for the US not to pay up, apart from denying Russia the amount.
As it is, I think that the USG cares NOTHING for the Ukrainian people, they will let them fight – and die – on behalf of the USG, while the USG’s puppets try and rip off the country financially.
Ukraine is on USG life support. Whether this changes with a change of Pres in Jan 2017, with biden out of the way – hopefully – remains to be seen.
The ‘USG’ cares for nobody. Lack of human empathy and compassion are essential features of the psychopath, and those creatures are pure psychopathy in action.
Ukraine is a total mess. I feel badly for the children and elderly that are suffering.
“Anything the U.S. touches turns into Libya”.
” “Anything the U.S. touches turns into Libya”.
—President Putin ”
Your source of this? Link?
It was a year ago in a talk he gave.
Carmel, destroying a society, particularly harming children, just produces more psychopaths, future cannon fodder for the Real Evil Empire’s death-squads. Moreover, as we can see from the epidemics of paedophilia and child pornography across the glorious West, hatred of children is a widespread feature of really existing ‘Western Civilization’.
“/…/ unhappy at the way the IMF is being converted into a tool to serve the geopolitical purposes of the West.”
To which the corollary question becomes what exactly the renowned Institution for MIsery and Famine has been throughout its entire existence. Supposedly another spotless Western philanthropic society firmly committed to honesty, justice, science, and what-have-you.
The utter sodomization of Southern Europe and the Ukro-trash courtesy of the IMF beautifully shows that the 1% don’t give a hoot about what anybody thinks or feels about Western imperialism. Of course, there is a real possibility this arrogance is perfectly justified with regard to the Ukraine. After all, people pleading to be raped should have nothing to complain about when treated accordingly.
“At the same time it is difficult to avoid a sense of growing exasperation amongst Western leaders with Ukraine.”
Quite likely so, yes — Crimea comes to mind immediately. Deploying NATO troops there would have been an immense Zionazi victory and, highly likely, the beginning of Russia’s long yearned for terminal disintegration; all but achieved under Yeltsin. Now, with Crimea “annexed-by-the-Putin-regime”, Banderastan and its EU worshipping Nazi government and ditto street rabble are embarrassing and of little use.
“/…/ Western leaders have gradually discovered what the Russians have known all along – that Ukraine’s Maidan leaders are fanatical, incompetent, corrupt and completely beyond reason.”
In EU’s case, this would be a neat illustration of the proverb “Takes one to know one”. The fascist offal which pretends to be ruling the Ukraine was selected 100% by the Western powers, the latter having correctly assessed the aptitude of their Ukro protegés. A regime made up of drooling, reactionary, bloodthirsty imbeciles was precisely what made most sense.
“Dizzy with their own success”, said Lavrov, quoting Stalin. Porky was in attendance, but I am afraid the irony was wasted on him.
I just read Biden’s speech to the Rada. Made me want to barf. Especially after reading Putin’s press conference.
Michael Hudson has just published the BIG PICTURE of how the IMF ruling on Ukraine Debt fits into the global economic war that is heating up. This is really scary stuff and would likely lead to a deepening of the worldwide depression.
IMF officials and banks are being investigated for money laundering of IMF funds by the US Dept. of Justice.
A stinking kettle of fish – IMF heavily implicated in facilitating Kolomoisky’s Privatbank money-laundering schemes:
* * *
And, something which goes a long way to explaining why RT’s comments section is moderated in suspiciously standard Zionist ways – the owner of Hypercomments, Alexander Vityaz, is head of Privatbank’s e-commerce division.
Now, how on earth did Kolomoisky-connected Hypercomments get a contract for Russian state-funded television?
Another of Vityaz ‘ companies has developed a contactless banking system bypassing costly certifications/encryption -hmmm..
Wonder if Kolomoisky has any ‘useful’ information on RT founder’s recent untimely demise?
It is pity that world (especially the West) is realising very painfully – how much better the world was with “corrupt dictoators” around. Saddam, Gaddafi, Saleh and Yanukovych (should I club him with others?) – for all their faults were keeping lot of bigger problems under control. In place of trying to throw them out – a replacement was required. Unfortunately, NATO and US are not very good at creating replacements – they just want to bomb away. And in Ukraine’s case, they hoped to corner the Russians finally (given they failed miserably with Georgian experiment) – so they never given a second thought.
Ukraine has to pay that USD 3 billion to Russia – IMHO that is a small amount for US/EU to pay and force Ukraine to oblige in future. But in other part of my mind – I know Ukrainians are not very good at returning favour or paying back.