IMF Should Change ‘Asymmetric’ Lending Policy to Assist Ukraine

© AFP 2023 / MANDEL NGANThe seal of the International Monetary Fund is seen at the headquarters building in Washington, DC on July 5, 2015
The seal of the International Monetary Fund is seen at the headquarters building in Washington, DC on July 5, 2015 - Sputnik International
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The International Monetary Fund (IMF) needs to modify one-sided lending policies to help states like Ukraine manage unsustainable debt owed to public sector creditors, former IMF European Department Deputy Director Susan Schadler told Sputnik.

WASHINGTON (Sputnik) — IMF Communications Director Gerry Rice urged Ukraine and Russia to explore avenues for restructuring Kiev’s outstanding $3 billion debt to Moscow.

"The IMF will lend when a country is in arears with a private creditor as long as it’s making good faith efforts to negotiate with them, but it will not when a country goes into arears with an official creditor," Schadler said on Friday. "The logic of that is not at all clear to me."

Schadler, now a Senior Fellow at the Centre for International Governance Innovation, said changing policies to help Ukraine repay its debt with Russia makes sense because the IMF should not treat the public sector any different than it does private lenders.

The current policy leaves countries helpless to deal with unsustainable debt levels when official creditors decide to hold out, she argued.

"The whole process that the international system has setup is hijacked by this one official creditor, who may have good reasons [or] who may have terrible reasons for doing it," Schadler claimed.

The IMF has been considering getting rid of the current debt policy for years, she explained, dating back to 2013 in a Fund paper on how to handle sovereign debt crises.

Earlier on Thursday, US media reported the IMF could reform its lending policies in order to proceed with a bailout program for Ukraine even if the country potentially defaults on its debt to Russia.

The IMF's current policy is putting the four-year $17.5-billion assistance package to Ukraine, approved by the Fund in March, in jeopardy.

Russia, which purchased $3 billion in Eurobonds from Kiev in December 2013, maintains that Ukraine must repay its debt in full by the end of 2015.

The IMF could reconsider its lending-into-arrears policy in late November, according to media reports.

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