Kiev has money for war but not for heating its people's homes

This article originally appeared at German Economic News. Translated from German by Werner Schrimpf

Russia is taking a tougher stance towards Ukraine: Ukraine’s potential failure to fulfill its loan obligations due in December would be classified as payment default. National bankruptcy would be the consequence.

Recently the World Bank and EIB granted a credit guarantee to Ukraine: this liquidity enables Ukraine to fulfill its obligations towards Gazprom and secures gas supplies not a moment too soon before winter comes.

Russia’s president Putin intends to involve the International Monetary Fund (IMF) in this dispute over debts. The IMF should take the role of a lender of $3 billion to Ukraine thus enabling the neighboring state to redeem a loan with the same value due in December, Putin stated last Tuesday in Moscow. Any shortfalls concerning Ukraine’s financial obligations within the terms and conditions would be graded as payment default, Russia’s finance minister Anton Siluanow announced.

Last August Ukraine was able to agree with its main debt holders upon a haircut. A bailout package provided by the IMF helped to close a financial gap of approx. $40 billion. But Ukraine still owes $3 billion to Russia. This amount had been invested in Ukrainian eurobonds by Russia in 2013 and these bonds are due in December 2015.

President of the European Investment Bank (EIB), Mr. Werner Hoyer, and president of World Bank, Mr. Jim Yong Kim, signed an agreement last Tuesday which grants further $520 million (€457 million) of taxpayers' money in the form of credit guarantees to Ukraine. This information was provided in the current bulletin of the EIB. Ukrainian gas company NJSC Naftogaz will use these funds to acquire gas supplies from Russia.

“European and global institutions are obliged to support Ukraine having in mind that winter is drawing near and we have to avoid a potential severe energy crisis. Thanks to the guarantee agreements signed today Ukraine will be in a position to buy gas in a crucial phase” Mr. Hoyer explained.

In the middle of September EU representatives met with their Russian counterparts in Vienna in order to negotiate gas supplies to Ukraine during the forthcoming winter period. The EU will transfer €500 million to Gazprom group. Thus the down payments for the fourth quarter 2015 and first quarter 2016 have been achieved.