IMF changes rule on debt as Ukraine faces Russia deadline

The International Monetary Fund on Tuesday changed a rule that would have blocked its financial aid programme to Ukraine in the event the country defaulted on debt owed to Russia. 

PHOTO: AFP

DEC 9, 20157:06 AM

[WASHINGTON] The International Monetary Fund on Tuesday changed a rule that would have blocked its financial aid programme to Ukraine in the event the country defaulted on debt owed to Russia.

The move - which drew an angry response from Moscow - comes as cash-short Ukraine faces a looming year-end deadline to repay Russia for a US$3 billion loan.

Until now, the IMF could not provide financing to a member country that was in arrears to an official creditor, such as a government.

The rule was particularly problematic in the case of Ukraine, which received a US$17.5 billion financial rescue from the IMF in March.

"The IMF's executive board met today and agreed to change the current policy on non-toleration of arrears to official creditors," said IMF spokesman Gerry Rice in a brief statement.

"We will provide details on the scope and rationale for this policy change in the next day or so." Moscow blasted the IMF decision, which could in theory allow Ukraine to miss debt payments to Russia without impacting its bail-out program.

"The decision to change the rules looks hasty and biased. This is done only at the expense of Russia and to legalize the possibility of Kiev not paying its debts," said Russian Finance Minister Anton Siluanov.

"In these conditions, we have no other choice but use all possibilities to defend our rights as a creditor. We are preparing documents for a court appeal," he said.

Moscow and Kiev are locked in a dispute over US$3 billion that Russia loaned the Kremlin-backed president Viktor Yanukovych in 2013, before pro-European protests led to his ouster.

The Russian government earlier Tuesday said it had made its last offer to Ukraine on restructuring its debt.

"Russia put forward an offer for restructuring... unfortunately our interlocutors have not accepted this initiative," Kremlin spokesman Dmitry Peskov said. "There will be no other proposals by Russia."

Russian President Vladimir Putin last month said Moscow was ready to spread out the repayment over three years after initially demanding that Kiev make good on the full amount by late December.

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