Ukraine’s finance minister on Friday said Kiev and its private creditors would next week launch direct debt restructuring talks that could save the war-torn country from a devastating default.
Natalie Jaresko’s announcement came as the ex-Soviet state’s pro-Western leadership races to meet a late June deadline by which it must find a way to save $15 billion (13.7 billion euros) over four years.
A watertight debt relief plan would allow the International Monetary Fund to hand over the next slice of a $17.5-billion loan at the core of a $40-billion global aid package.
IMF executives are yet to name a specific date on which they will discuss Ukraine during their late June meeting.
But Jaresko’s office said a teleconference between “finance ministry representatives” and a pool of commercial US creditors has been provisionally scheduled for next Friday.
“We are slowly but confidently emerging from crisis,” Ukrainian news agencies quoted Jaresko as saying.
Ukrainian President Petro Poroshenko on Thursday signed a bill passed by parliament last week giving Kiev “the right, if necessary, to stop payments to foreign debt holders”.
The measure is largely symbolic and meant to underscore lawmakers’ support for a payment moratorium that could theoretically turn Kiev into a financial outcast with no access to international lending markets.
Such a freeze would almost certainly prompt Russia — due a $3-billion loan repayment at the end of the year — to ask the International Court of Justice in The Hague to declare Ukraine in default.
Large US private creditors who hold $8.9 billion of Ukraine’s obligations have thus far also stuck to their guns.
They are particularly keen to avoid taking a “haircut” that slashes their bonds’ original value and forces them to assume an overall loss.
Bloomberg wrote on Friday that the creditors — which include Franklin Templeton and such investment giants as TCW Group and T. Rowe Price — on May 9 submitted a counter-proposal they said would save Ukraine $15.8-billion over four years.
It reportedly preserves the bonds’ original value but extends their maturities by 10 years. Bloomberg said the creditors’ plan would also lower the interest payment and allow the original loan amount to be payed back in small instalments instead of a lump sum.
– ‘Protracted dispute’ –
Ukraine’s US-born finance minister has not publically responded to the solution proposed by the major bond holders.
But she stressed on Friday that Kiev could no longer afford to spend five percent of the federal budget — already stripped of the tax revenues it would otherwise draw from the huge eastern Ukrainian coal mines and steel mills — servicing its sovereign and government-backed debt.
“This debt puts pressure on the economy and on our ability to finance other expenses,” Jaresko said.
Kiev concedes that a debt deal and the IMF funds that come with it are essential for the Ukrainian government’s survival in the short term.
Ukraine’s year-on-year inflation rate reached a staggering 60.9 percent in April and industrial output — already weakened last year by the raging war with pro-Russian militants — declined by another 23.4 percent.
The threat of inflation climbing even further because of Ukraine’s dire currency shortage forced the central bank on Thursday to hold its key lending rate at 30 percent — a level that effectively chokes off economic growth.
Yet analysts warn that Kiev is far from guaranteed meeting the requirements necessary to unlock the next IMF loan payment.
The London-based Capital Economics consultancy said the five US investors’ approach inched the sides forward but did not guarantee a final deal.
The US group is “reportedly in close contact with other private creditors holding $10 billion of debt, but it’s not clear that these creditors have agreed to the proposal,” Capital Economics said in a research note.
Other major Ukrainian debt holders include the US heavyweights PIMCO and Blackrock.
“And finally, this proposal doesn’t tackle the thorny issue of the $3-billion Russian eurobond,” he stressed.
“As yet, it’s not clear what will happen with this, but it seems set to cause a protracted dispute.”