Showing no signs of economic recovery, Ukraine looks towards a 50 percent debt cut with help from the IMF. Russia, as one of the biggest creditors, would lose $1.5 billion if plan falls through

The article originally appeared at German Economic News. Translated for RI by Anita Zalaldinova

Since the beginning of the crisis, Ukraine has received several loans from the IMF and the EU. These loans must be repaid only in a few years. However, the financial situation of the country remains vulnerable. Over the next four years overdue debts totalling $15 billion are to be paid. Three billion of them are a former loan from Russia and it needs to be paid in December of this year. The IMF could prevent it.

Jaresko would rather blow money on armaments

The IMF has developed a program for Ukraine with which the current financial hole is to be filled with a loan in the amount of $40 billion. The due debts are part of the plan – they should be restructured. The IMF has not yet said how it would look exactly. Experts reckon that the IMF believes that Russia should participate in a kind of debt cut, the FT reports. "It is clear that the IMF requires Russia's $3.5 billion bond issue to be included in the restructuring”, said the FT Charles Blitzer from Blitzer consulting who used to work for the IMF.

However, the plan of the IMF does not make it clear how large the debt cut will be, says Blitzer. "It is up to the Ukrainian authorities to determine the extent and nature of the debt restructuring", said a spokesman for the IMF. Sources close to Government expect a planned debt reduction of 50 percent. "But creditors rather try to agree on a term extension”.

Whether the international creditors accept a debt cut and if so, then to what extent it will be reduced, is not yet clear. Last week, Russian Finance Minister Anton Siluanow said that Russia still expect that the debt would be repaid in December in full. And Frank Templeton, the largest bondholder of the country, has brought legal help for debt negotiation in Blackstone.

Last week the Ukrainian Finance Minister Natalija Jaresko said the WSJ that the loans pledged so far would not be enough to bring Ukraine back on its feet. "The package will stabilize the banking system but it is not enough to seriously re-stimulate growth”, said Jaresko. "I need more support." “No one currently pays more to protect the world from a nuclear power”, and "if our partners, for whatever reason, are not able to assist us with defensive military means, they should provide more financial assistance".

Just on Friday the Ukrainian Central bank had to declare three other banks insolvent. The VAB Bank, Astra Bank and the City Commerce Bank are deprived of their licenses. At the same time, Ukraine is already planning an expansion of military resources. In sum, a total of 3.8 billion dollars will be spent on armaments in 2015.