Ukrainian Lawmakers Back Debt Pact, Ending Concern of Revolt
Ukraine’s parliament approved a pact negotiated by the government to restructure $18 billion of foreign debt, dispelling concern that a revolt by lawmakers would scupper the deal and jeopardize the flow of bailout funds.
Legislation to finalize the accord was backed by more than 300 deputies from ruling and opposition parties in the 450-seat chamber Thursday in Kyiv. The result means the restructuring, sealed in August, can continue as planned.
“Voting in support of this bill means a vote in favor of economic growth and inflows of foreign investments,” Prime Minister Arseniy Yatsenyuk told lawmakers before the vote. “Voting in favor of the deal gives Ukraine additional financial resources and the chance to conduct economic reforms.”
Rejection of the debt pact would have risked derailing the timeline for restructuring, sealed after months of talks with creditors including U.S.-based fund Franklin Templeton. It could also have triggered a suspension of the nation’s $17.5 billion rescue from the International Monetary Fund, Finance Minister Natalie Jaresko warned Wednesday. While the vote passed, the government’s struggle reflects waning support for President Petro Poroshenko, whose efforts to reach peace in Ukraine’s eastern conflict have enraged some.
Bonds Rally
Ukraine’s $2.5 billion of bonds due in July 2017 climbed to a 10-month high after the vote, jumping 0.55 cents to 77.05 cents on the dollar. The bonds gained 1.07 cents on Wednesday even as the government lobbied lawmakers over concern the deal may be rejected.
The debt accord envisages a 20 percent writedown of the face value of the bonds, higher average coupons and warrants tied to a recovery in Ukraine’s shrinking economy. Gross domestic product slumped 14.7 percent from a year earlier between April and June, a sixth straight quarter of contraction. To revive growth, the government is overhauling regulation and seeking to stem corruption.
“The vote allows the restructuring process to continue, for the government to push forward,” Alexander Pecherytsyn, an analyst at Credit Agricole Bank in Kyiv. “Lowering debt pressure on the state budget in the coming years is probably the biggest advantage.”
Poroshenko has faced a backlash over plans to grant pro-Russian separatists more autonomy over the lands they control in Ukraine’s east, part of a February peace accord signed in Minsk, Belarus, after mediation from Germany, France and Russia. The passage of legislation on the issue last month prompted violence in Kyiv that killed three police officers and prompted a minority party to quit the ruling coalition.
Ukrainian politics is often unpredictable, with allegiances frequently shifting and party lines breached. IMF chief Christine Lagarde met with political parties this month in Kyiv and urged them to accept the debt plan.