This article is more than 5 years old

This article is more than 5 years old

Ukraine’s parliament on Tuesday handed ministers the power to suspend foreign debt payments to defend against “unscrupulous” creditors.

The vote was the latest episode in an escalating row over a $25bn (£16bn) rescue package with the International Monetary Fund and European Union.

“In case of attacks on Ukraine by unscrupulous creditors, this moratorium will protect state assets and the state sector,” the prime minister Arseniy Yatsenyuk said.



Finance minister Natalie Jaresko said the overwhelming vote in the Rada, allowing the government to suspend payments to Ukraine’s international sovereign debt-holders, was “an important protection for citizens who are already shouldering a heavy burden due to the war in the east”.

The new law was passed only days before EU finance ministers are due to meet in the Latvian capital Riga to discuss how to stabilise Ukraine’s finances in the wake of the uprising centred on Donetsk and a dispute with Russia, which Ukraine claims supports rebel fighters.



Jaresko has argued for months that the economic situation inside Ukraine has worsened in recent months following the collapse in oil prices and imposition of sanctions on Russia, which remains its largest trading partner.

German chancellor Angela Merkel is keen to resolve the debt crisis to shore up her own economy, which was heavily connected to Russia and Ukraine.

The IMF has led talks over how to bridge a $15bn funding gap that Jaresko says Ukraine is unable to bridge without further funds.

It has pledged about $17.5bn with a top-up from the EU and other lenders, including the World Bank, taking the total to $25bn.

Ukraine must also finance about $23bn (£15bn) of private sector debt, , almost all of which is owed to US and UK financial institutions, apart from $3bn which is part of a Russian bond and another $1bn held by Russian banks..

Jaresko wants the debt pile to be cut, and the maturity on loans to be extended to reduce funding costs. She said private sector creditors should also reduce the interest rate on Ukrainian sovereign bonds.

She said: “Our government expects our international commercial creditors to negotiate respecting the principles of transparency, responsiveness and good faith.



“Today’s vote demonstrates the seriousness of our difficult financial position and the need to rapidly conclude a debt operation … I remain confident that such a solution can be found.

“Given our economic challenges and situation, our current debt levels are unsustainable and any deal with our international commercial creditors must include maturity extensions, coupon reductions and principal reductions. There is no alternative.”

EU negotiators are reluctant to approve a radical overhaul of Ukraine’s debts when the total outstanding only amounts to 71% of GDP. Germany and the UK currently manage debt piles of about 80% of GDP.

However, civil war in the east of the country, which is adding more than $5m a day to the defence bill alone, has sent the currency tumbling by more than 70% and sparked an inflation rate of more than 60%.

Jaresko said the country was also coping with steeply rising gas prices and demands from private sector debt-holders for full repayment of loans bought speculatively over the past two years.

IHS Global Insight analyst Jan Randolph said the Ukrainians were attempting to fast-forward the usual debt negotiations with demands for a writedown on its debts, but the usual rules might not apply to a country facing a war in its eastern half.

“The public debt has gone up to 71%, which is not a level you would consider a crisis when the Germans and the UK have higher public debts. But Ukraine is not in a usual situation,” he said.

“A major problem is that Russia has gone into recession and when that happened, Ukrainian nationals were expelled, gas prices were increased, the costs of conflict escalated and the situation worsened.”

The debt of state-owned Ukreximbank, Oschadbank and Ukraine railways, which is also being restructured, would not be subject to the moratorium, the official parliament’s statement said ahead of the vote.



• This article was amended on 26 May 2015 to correct the figure the IMF has pledged for the rescue package; and figures for Ukraine’s private sector debt.