No money for Moscow as Ukraine refuses to repay $3bn to Russian Federation

Ukrainian Prime Minister Arseny Yatseniuk placed a moratorium on the loan payment, due to be paid Sunday.

“Considering that Russia has refused, despite of our efforts, to sign an agreement in the restructuring and to accept our proposals, the cabinet is imposing moratorium on payment of the Russian debt worth $3 billion”, Yatsenyuk reportedly said during a cabinet meeting Friday.

The dispute is further complicated by fears that Ukraine is heading for a wider default after the parliament rejected a new tax code and the draft 2016 budget, both considered essential elements of the restructuring demanded by the International Monetary Fund as the price of its loan.

Alongside the sovereign debt, the Ukrainian government has made a decision to put on hold the repayment of a combined debt of $507 million that two Ukrainian state-owned enterprises owe to Russian banks. “And in this case problems will emerge for many creditors who gave money to Ukraine and continue to do it”.

“I remind you that Ukraine has agreed to restructure its debt obligations with responsible creditors, who accepted the terms of the Ukrainian side”.

Many – including the president of Ukraine and the head of North Atlantic Treaty Organisation – interpreted Putin’s words as effectively an acknowledgement that Russia did send regular troops across the border to buttress Russian-speaking rebels in eastern Ukraine, a claim the Kremlin has always denied. Kyiv has a 10-day grace period to pay debt to Moscow after the late December deadline.

The default “is just confirmation of the unimproved relations between the countries”, said Simon Quijano-Evans, the London-based chief emerging-market strategist at Commerzbank.

The default comes after Russian Federation refused to participate in an $18bn restructuring with commercial creditors earlier this year, arguing it should receive better terms since it’s a sovereign lender.

Moscow and Kyiv have been locked in a bitter showdown over a Russian $3 billion loan granted to the pro-Moscow regime of ex-president Viktor Yanukovych in December 2013, not long before he was ousted and fled to Russia.

Open all references in tabs: [1 – 3]