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IMF set to help Ukraine avoid debt repayment to Russia

October 30, 2015, 21:24 UTC+3 Alexandrova Lyudmila

MOSCOW, October 30. /TASS/. The IMF’s plans to change the lending rules suggest that the Fund is actually adapting to Ukraine’s needs and wants to help Kiev avoid repaying its $3 billion debt to Russia, experts say.

The IMF will take a step dangerous for the stability of the international lending system, if it gives up the practice of denying loans to countries that owe to official creditors, according to experts.

Russia bought $3 billion worth of Ukraine’s sovereign bonds in late 2013. Ukraine is due to repay its debt to Russia before December 20, 2015. Ukraine’s financial authorities have said on many occasions they consider Russia’s loan as a commercial debt and insist on its restructuring. Russia, however, considers this loan as Ukraine’s sovereign debt and demands its repayment on schedule and in full.

"Russia’s position has not undergone any changes," Kremlin spokesman Dmitry Peskov said on Friday. "Russia continues to insist that this is not a private loan but a sovereign state debt that has to be paid."

Russian Finance Minister Anton Siluanov reiterated on Friday that Ukraine’s debt to Russia was not subject to restructuring and write-off under Kiev’s program for private creditors and the Finance Ministry would turn to an international court, if Kiev failed to repay the loan in December 2015.

The Ukrainian government is preparing to pass a decision on a moratorium on debt repayment to Russia, the publication Apostrophe reported on Friday, referring to a government source.

Moscow hoped until now that it would be able to raise the issue of the IMF’s further assistance to Ukraine under the four-year $17.5 billion loan facility, if Ukraine refused to repay the debt. The IMF’s rules prohibit providing loans to countries with overdue payments to other states. However, as an IMF official said at a briefing on Thursday, the Fund is now discussing reforms, which should allow providing loans to countries even if they have overdue debts to official bilateral creditors. According to The Wall Street Journal, the IMF governing board will consider these amendments in late November.

"The haste, with which this is done, testifies to the fact that the moment for discussing the amendments to the Fund’s rules coinciding with the second review of the IMF’s Ukraine program has not been chosen by chance," Siluanov said.

"If the IMF amends the lending rules and Ukraine defaults partially on its obligations, it will be difficult for Russia to get its loan back," Professor of the Russian Presidential Academy of the National Economy and Public Administration (RANEPA) Yuri Yudenkov told TASS.

"A loophole is opening for Kiev not to pay the debt. An impression is created that the IMF is seeking to prevent Russia from getting this money back," he added.

If the IMF amends its lending rules, each country will itself determine to whom it will return the debt and to whom it won't repay the loan, the expert said.

"Everything will be determined by situational political considerations of a particular government. Surely, this will not contribute to the development of the international lending system," he added.

"Everyone would think about whether a particular country will return me the debt or not or whether it will be repaying the debt to someone else. If the IMF amends the rules, this will be bad for everyone, especially for creditor nations. Rules of the game will change: general stability will be sacrificed for the sake of political interests," the expert said.

The expert said he was surprised by the selective approach of the IMF, an international organization established by the United Nations.

"The IMF means not only the United States and Great Britain but also China and Russia. Of course, we have small quotas but we are participants and we have our capital there [in the IMF]," the expert said.

"A decision by the IMF to change the lending policy would be very dangerous because it weakens the requirements of international financial institutions, which are not tough even now compared with commercial creditors," Professor of the Higher School of Economics Ivan Rodionov told TASS.

Last year, when the IMF started to provide loans to Ukraine, part of the loans was purposefully intended several times for repaying debts to Russia. However, this did not happen, the expert said.

The scenario of applying to a court of law holds little prospects, the expert said.

"The case examination would last long while a decision would finally not be enforced. It will be necessary to come to terms as there is no other method," the expert said.

"Most likely, Russia will see a judicial process for many years with a hardly predictable prospect because it is quite probable that Ukraine will refuse to pay," RANEPA Associate Professor Sergey Khestanov told TASS.

"This means we’ll have to conduct legal proceedings for 3 to 10 years in international courts. Today it is quite difficult to predict the outcome of the process. But in any case it is understandable that the litigation will drag on," the expert said.

In the expert’s opinion, "most likely, the IMF’s intention is partly dictated by purely economic considerations so as not to further worsen Ukraine’s plight but politics is also present in this case partly and latently," the expert said.

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