Ukraine: Debt restructuring talks falter as Russia refuses to join

The deals with the private sector done, Ukraine is now scrambling to renegotiate its sovereign debt with other governments, most notably Russia. Additionally, Kiev’s Finance Ministry are working to provide currency swap lines to boost the country’s emergency cash reserves for the coming months (neatly coinciding with the return of gas debt talks with Russian Energy Minister Alexander Novak on April 14). Last month, the $5.6 billion in dollar reserves could barely cover the one month’s worth of gas imports. The IMF stated that is goal is to raise Kiev’s cash reserves to some $18 billion by the end of the year. However, the IMF’s own prognosis of the situation is decidedly negative – much of this stems from any future economic and growth outlook given the presence of separatist rebels in the East and continued fighting.

Russia has notably refused to join the debt restructuring negotiations. Russia’s Finance Ministry reported no official contact with Ukraine about the renegotiation of roughly $3 billion in Eurobond debt, which mature in December. Despite the fact that negotiations between Kiev and Franklin Templeton (the largest holder of Ukrainian debt) were successful, Russia holds the second largest amount in December 2013 after Yanukovych rejected an association agreement with the EU, sparking the Maidan protests. Ukraine’s ambition to restructure all external sovereign debt incurred before March 2014, and while most report sending representatives to these negotiations, Russia has denied receiving any invitation.

The Russian finance ministry released a statement expressing its indignation about being grouped with private sector debtholders like Franklin Templeton, saying “We have no obligation to be in one wagon with those creditors who purchased Eurobonds on the secondary market at a price that was far from the nominal price. Those creditors can be much more flexible and can afford different options. We don’t have the opportunity to work with different options.”

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News Briefs:

  • In Astana, Kazakh citizens organized demonstrations on the sharp rise in mortgage payments endured by the populace. The demonstrators demanded that President Nazarbayev support their efforts to renegotiate hard currency mortgages, as most of them say they cannot afford to pay off their loans. Most blame the devaluation of the tenge last February, when its value declined some 20%. However, this is likely due to the extreme inflation of the value of the tenge currently, especially in comparison to the ruble and other Central Asian currencies. Regardless, this decline in purchasing power has resulted in the Central Bank approving some 135 billion tenges for mortgage relief in mid-May.
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  • On Tuesday, the Duma stripped immunity from Ilya Ponomaryov, an opposition lawmaker. The accusation is embezzlement, but speeches before the vote criticized Mr. Ponomaryov for everything from lack of patriotism to a shabby appearance. My. Ponomaryov has been in the US since last August and said that he was unsure if he would return to Russia.
  • Sergey Aleksashenko at the Brookings Institute on his projections for Russia’s economy into 2050, citing its negative demographic trend despite active immigration into the country, rising mortality rates of males, and declining foreign labor due to the depressed outlook for the Russian economy in 2015 and going into 2016. He says the most important trends for the overall health of the Russian economy will be based in the changes in its labor market. He points to demographic and economic changes in the CIS as the largest indicators of changes in labor markets. Read the entire report here.
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