Ukraine: IMF supports bailout even if creditors are unpaid

The IMF’s Deputy Managing Director David Lipton gave a statement on default risks and creditor relationships that suggests the organization will continue to support Ukraine even if it decides to follow through on the threat of last month’s legislation allowing it to ignore payments to creditors like the consortium of institutional investors like Franklin Templeton and T.Rowe Price as well as sovereign creditors like Russia and still receive the IMF bailout. The statement was made with the stipulation that “…allow us to continue lending to a member state when it has arrears with private creditors, providing it’s fulfilling all its other commitments that it’s made to us.”

All of this comes in the midst of a vicious negotiation of debt restricting in Ukraine, where the country’s negotiators are attempting to institute a haircut on the amount of debt owed to international creditholders, but creditors are holding firm thanks to the promise of the $17.5 billion bailout by the IMF.

Ukraine has some $2.6 billion worth of bonds maturing in July 2017, and interest payments on the principal alone has taken the government close to insolvency. David Lipton has stated, pointedly, that one of the IMF’s interests is in incentivizing the Russian Federation, who holds $3 billion of Ukrainian government debt, to assist in the restructuring in order to stave off a full blown default.

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