It appears that Russia, by challenging Ukraine to make clear its intentions about the $3 billion debt it owes Russia, has successfully called Ukraine’s bluff.
Ukrainian finance minister Jaresko is now reported to have admitted Ukraine’s liability to pay this debt. Although Jaresko did not say that Ukraine now admits this debt is public debt as opposed to private debt and will not default on it, that is the logic of what she is saying.
Jaresko has admitted that Ukraine is trying to get Russia to agree to restructuring this debt. Her precise words were:
”We acknowledge this loan of $3 billion as well as any other European obligations. I don’t hide our intentions to restructure this loan. I’m doing everything I can.”
The logic of these words is that Ukraine does not intend to default on this debt. There would be no sense in seeking an agreed restructuring if it did. By equating this debt with Ukraine’s European debt, Jaresko appears to be admitting that it is public debt, like the European debt.
While we cannot know for sure, the likelihood is that following the storm whipped up by Poroshenko’s comment that Russia’s loan to Ukraine was a “bribe”, the IMF in confidential discussions warned Ukraine that it would not support Ukraine if it defaulted on this loan (as to why the IMF might do this, see our discussion in “Poroshenko Calls Russia’s $3 Billion Loan A ‘Bribe’”, Russia Insider, 16th June 2015).
One thing that suggests that what caused Ukraine to back down was a warning from the IMF is the complete failure of the Western media to report Poroshenko’s comment or the Russian reaction to it.
If the IMF intended to support Ukraine’s decision to default on the Russian loan, then past experience suggests there would have been strategically placed leaks in the Western media saying as much, together with editorials in the Western press backing the IMF and Ukraine for the stand they were taking.
That after all is what happened prior to Ukraine’s decision to threaten to default on payment of the debts it owes to its private creditors. See for example this editorial in the Financial Times (“Ukraine’s creditors must share the country’s pain”), published just before the IMF’s backing for Ukraine’s plan for a debt moratorium was made public.
Though the Russians look like they have won this round, this is hardly the end of the story.
Payment of the debt to Russia is going to be deeply unpopular and controversial with the Maidan movement. Some of Ukraine’s Western backers are also going to be unhappy. Some of them are already making clear their anger at the limited help (as they see it) that Ukraine is getting.
As the weeks and months go by, and as Ukraine’s economic crisis gets worse, it is a virtual certainty that this issue will be revisited.