Ukraine Defaults On Russian Loan: What's Next?
25 December, 2015

There was no alternative for Ukraine other than defaulting on a Russian $3 billion bond, Olena Bilan, chief economist of The Dragon Capital, a Kyiv-based investment firm tells Hromadske. The country doesn’t have the money, but even if it did, paying off the loan would violate conditions of the IMF bailout program and a debt-restructuring deal with international investors, negotiated by the Ukrainian government in late 2015 and refused by the Russian government, Bilan thinks.
At the same time, a Russian offer to restructure the debt is not a workable solution because the Kremlin just pretends to be collaborative, Bilan thinks. “President Putin stated that Russia is ready to restructure the bond – on terms that are not acceptable from the standpoint of the IMF program or from the standpoint of private creditors. He offered something that is not acceptable. And he did it not officially but said publicly that Russia is making this nice step. His proposal is that the bond is paid in 3 equal installments in 3 years - 2016, 2017, 2018 -exactly during the life of the IMF program. So when other Ukrainian official creditors –the IMF, the EU, the World Band, the US - will be giving money to Ukraine during this time, Ukraine will be using this money to pay Russia. And Russia also asked for guarantees from the US and from other official creditors who will guarantee that Ukraine will pay Russia no matter what happens to the country. So you can decide for yourself who’s doing what in this game,” she expands.
Ukraine’s default on the Russian bond won’t affect a crucial IMF bailout program, but populist attacks on a tax code reform and the 2016 budget introduced by the country’s finance ministry can, Bilan warns. It does not look good to have two competing tax code proposal from the Ukrainian parliamentary coalition and zero compromise, she adds: “Dialogue is a normal process in democracy. It appears there is no dialogue, but a confrontation. And the Parliament is absolutely not ready to take responsibility to cut spending, to continue the structural reforms that the IMF clearly stated.”
Hromadske’s Maxim Eristavi spoke to Olena Bilan of Dragon Capital on December 18th, 2015 in Kyiv.