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Moscow’s offer to restructure Ukraine’s $3 bln debt means only start of uneasy talks

November 17, 2015, 17:23 UTC+3 Alexandrova Lyudmila
© Stepan Petrenko/TASS

MOSCOW, November 17. /TASS/. Russia’s offer to restructure Ukraine’s $3 billion debt maturing in December and accept repayments over the next three years is just the beginning of difficult talks with an uncertain outcome, experts say.

In any case, it is obvious that Ukraine won’t be able to repay the debt on its own and the only question is whether international lenders would want to shoulder responsibility in this situation.

Russia has offered Ukraine to repay its $3 billion debt by $1 billion annual installments in 2016-2018 against the guarantees of the United States, the European Union or a reputable creditor, President Vladimir Putin said after his talks with IMF Head Christine Lagarde on the sidelines of the G20 summit in Turkey on Sunday.

"We have not only agreed to restructure the Ukrainian debt but we have offered better terms than the International Monetary Fund asked," the Russian president said.

As an alternative option, the IMF intended to discuss amending its lending rules in late November to allow Ukraine to get the Fund’s next loan tranche, even if Kiev defaulted on its sovereign bonds sold to Russia.

However, experts said this move could have created a precedent for countries that were earlier denied IMF loans due to their overdue liabilities.

"Putin’s proposal is attractive for the IMF as the Fund won’t have to finance a bankrupt country," Vzglyad online newspaper quoted analyst Anna Kokoreva with Alpari brokerage as saying.

"The point is that Ukraine is on the brink of a default but Russia has given it a chance to repay without a scandal," the analyst added.

The expert said she didn’t believe that Ukraine would be able to cope with the debt repayment on its own.

"The economy has shrunk by 7% and it will be a good scenario, if this decline slows down to at least 2-3% next year," she added.

The expert said she didn’t rule out that the issue of a sovereign default might resurface for Ukraine in a year.

All the same, Russia actually has no chances to have its loan repaid on time, macroeconomic expert, Associate Professor at the Russian Presidential Academy of the National Economy and Public Administration (RANEPA) Sergei Khestanov told TASS.

"Ukraine is in a difficult economic situation and the hopes that it will repay the debt on the terms the loan was provided are unrealistic. In these conditions, a creditor normally agrees to a compromise but it is achieved over a long period of time and in a painstaking process," the expert said.

"That is why, Russia’s offer should be considered simply as the first move in lengthy and uneasy negotiations. Most likely, there will be more proposals, counterproposals and options," he added.

Normally, the discussion period for such debts "is measured by years rather than by months," the expert said.

"Most likely, the terms should be further eased due to the state of the Ukrainian economy," he added.

The Ukrainian debt is more a political than an economic issue, leading expert of the Development Center Institute at the Higher School of Economics Sergei Pukhov told TASS.

"The offer is appropriate because Ukraine would have failed to repay on time in any case while judicial proceedings would have lasted long. But the process of reaching an agreement will also be long. Russia needs to get debt repayment guarantees while international financial institutions will proceed from Ukraine’s ability to repay its liabilities," the expert said.

"They are afraid of giving guarantees even under gas contracts as no one knows what will happen to the Ukrainian economy," he added.

Most likely, Ukraine will be unable to get out of the crisis on its own, without the IMF’s assistance in the next three years, the expert said.

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