00:03 GMT25 November 2020
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    The reform of the IMF lending policy is unlikely to help Ukraine avert default. Kiev may soon declare a technical default, the first step to bankruptcy.

    On Tuesday, the Board of Directors of the International Monetary Fund (IMF) voted to reform its lending policies, allowing countries to continue borrowing money even if they default on bilateral obligations to official creditors.

    Experts said that the initiative was linked to the risk of a default by Ukraine on its $3 billion debt to Russia and the fund’s pursuit to save it.

    According to Russian director at the IMF Alexei Mozhin, the decision came into effect immediately and would cover previous agreements.

    Thus, the reform allows the IMF to continue Ukraine's $40 billion bailout program even after a potential default by Kiev on its $3 billion Eurobond debt to Russia.

    Russian Finance Minister Anton Siluanov called the initiative premature and biased.

    Russia plans to initiate a meeting of the IMF Board of Directors to confirm the status of Ukraine’s sovereign debt to Russia, the minister added.

    Moscow has already begun preparing documents to file a lawsuit if Ukraine fails to pay the debt.

    "We proposed an option to settle the Ukrainian debt issue and addressed it to the IMF. But we were offered to have negotiations alongside with commercial creditors," Siluanov told journalists.

    "This dialogue is unconstructive. Now we have no other options but to prepare documents for a lawsuit," he added.

    Ukraine and its creditors agreed on the restructuration of nearly $15 billion of debt back in October. However the problem of its $3 billion debt to Russia has not been settled. Moscow has repeatedly rejected the idea to restructure the debt, saying it is sovereign and cannot be dealt with under the conditions for private investors.

    Earlier, Russian President Vladimir Putin proposed to restructure the debt but by the guarantees from the West. Despite the fact that the IMF supported the plan as a way to consensus, no agreements have been reached.

    The IMF is also in a troubled situation now. The fund stands for building a democratic and transparent economy in Ukraine, and it has even changed its policies toward crisis-hit nations.

    Nevertheless, the IMF admits risks from cooperation with Kiev. According to IMF representative to Ukraine Jerome Vacher, there is a risk for the cooperation program within the extended fund facility (EEF) mechanism between Ukraine and the fund.

    According to him, Ukraine may approve a budget which would not be correspondent with the IMF’s goals or would imply a policy the fund does not support.

    The revision by the IMF of its own policies is a bad sign for other major funds, analyst Georgiy Vaschenko told Expert. They may revise their policies of investing in low-rating countries’ bonds. If Ukraine declares a default Russia will file a lawsuit and will request debt settlement. If Russia wins Ukraine would have problems with borrowing money abroad.

    If Kiev passes the tax reform it would not help the economy, he underscored. Currently, the inflation rate is 46 percent, and the country’s GDP has dropped by seven percent. Within a year, the debt might reach over 75 percent of GDP. The IMF’s rejection to guarantee the restructuring of Ukrainian debt to Russia proves that the fund is not sure that the country would be able to service its debt within three years without new loans.

    Ukraine is currently on the brink of a default, analyst Anna Bodrova told Expert. The country has not solved any problems to receive the latest tranche from the IMF. It seems like Kiev is ready to declare a technical default. This does not mean the country will go broke, but it would be the first step to bankruptcy.  


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    International Monetary Fund, debt, economy, Ukraine, Russia
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