In Russia, Ukraine

By Alexander Mercouris, The Duran, Sept 15, 2016

As court case looms, Ukraine makes contradictory statements about its liability for $3 billion Russian debt whilst IMF makes first reduced payment of $1 billion in more than a year.

Christine Lagarde, head of the IMF, meets with Ukrainian President Poroshenko in Davos, Switzerland in January 2015

Christine Lagarde, head of the IMF, meets with Ukrainian President Poroshenko in Davos, Switzerland in January 2015

As anticipated, the IMF approved a $1 billion loan tranche to Ukraine at its meeting on 14th September 2016. As also anticipated, this was less than the $1.7 billion Ukraine asked for.

Officially, the reason the IMF has provided Ukraine with less than the $1.7 billion it asked for is that Ukraine has failed to carry out all the reforms it committed itself to. Whilst that is true, a similar failure to carry out reforms did not prevent the IMF lending Ukraine money last year.

Unofficially, as I have discussed before, the true reason Ukraine has received no funding from the IMF since 2015 and only $1 billion now is almost certainly concern about the pending court case Russia is bringing against Ukraine for recovery of the $3 billion loan Ukraine owes Russia, which London’s Commercial Court is due to hear in January. As I have explained previously, in the event the judgment goes against Ukraine, further advances by the IMF to Ukraine would be against its own rules, even after they were amended last year.

In a possible sign that Ukraine is starting to worry that it may lose the court case, RT is reporting Ukraine’s finance minister telling the IMF contradictory things:

Ukrainian Finance Minister Aleksandr Danilyuk told the IMF that Kiev is ready to settle with Moscow, but is also preparing to go to court. Earlier he said that it was a “political loan we were forced to take” and “our position is that we should not return the money.”

This looks like an admission Ukraine must pay the debt and a denial Ukraine must pay the debt at one and the same time. If “Kiev is ready to settle with Moscow”, then that is obviously an admission Ukraine must pay the debt. If “our position is that we should not return the money”, then that is clearly a statement that it is not liable to pay it.

Danilyuk’s contradictory statements show the difficult position Ukraine finds itself in. It has to deny it must pay the debt, since were it to admit the debt should be paid, it would automatically lose the court case in London. At the same time, it has to say it is willing to negotiate with Moscow to pay the debt – which of course means admitting it has to pay the debt – in order to satisfy the IMF and keep its restructuring programme on track.

My guess is that the Ukrainians seriously underestimated how quickly the case would come to trial and are uncertain what to do. Some Ukrainian officials were reported to have said at the time the claim was issued last January that they expected the case to go on for at least two years. It seems they thought they could string out the case – as apparently happens often in Ukraine itself – apparently unaware that London’s High Court – of which the Commercial Court is part – always to decide cases quickly as part of its overriding duty to do justice.

The result is that the case has taken just a year to bring to trial. The highly unconventional defence Ukraine has made against the Russian claim made it all but inevitable that the court would move quickly.

The future of Ukraine’s IMF loans now likely depends on the stance of the judges of Britain’s Commercial Courts. If they follow established precedents, Ukraine will lose, in which case it is difficult to see how Ukraine’s IMF programme can continue and Ukraine’s IMF agreed debt restructuring programme will collapse. If Ukraine wins, then in light of the unconventional defence Ukraine is making, it will mean that for the first time in its history the Commercial Court is bringing politics into its decisions.


IMF approves release of $1bn in resumed credits for Ukraine

By bne IntelliNews, Sept 15, 2016

The executive board of the International Monetary Fund (IMF) on September 14 approved the release of a $1bn credit tranche to Ukraine, ending an almost year-long halt of funding under the lender’s $17.5bn bailout package for the country.

IMF Managing Director Christine Lagarde said after the board voted in Washington that Ukraine is showing signs of recovery and improved confidence, attributed to its implemented reforms, sound macroeconomic policies and work to revamp Ukraine’s banking system.

“Further progress in fiscal reforms is key to ensure medium-term sustainability,” Lagarde said in a statement, but calling for pension reforms and tax policies to avoid higher deficits, and to restructure state-owned enterprises.

Confirmation of the disbursement came on the same day the cabinet in Kyiv reported GDP growth of 1.3% in the second quarter of this year, compared with 0.1% in the first quarter. In January-July, the amount of capital investments in Ukraine also grew almost 10% year-on-year, Economic Development and Trade Minister Stepan Kubiv said.

Ukrainian President Petro Poroshenko said in a statement that the release of the IMF tranche would help keep the country’s hryvnia currency stable and boost the economy. “The positive decision by the IMF is evidence that the world recognises that reforms are happening in Ukraine, that real and positive changes are happening in Ukraine, and that the country is moving in the right direction,” Poroshenko said.

The resumption of the IMF programme will also unlock other financial support for Ukraine, Poroshenko added, notably $1bn in US-guaranteed; Eurobonds and at least €600mn of macro-financial assistance from the European Union.

Related news:
Breaking: IMF approves $17.5 billion bailout package for Ukraine, RT.com, Wed. March 11, 2015

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