Western Creditors Are Outraged at Ukraine's Default Threat

Statement released by Ukraine's western creditors condemns Kiev for threatening default and for refusing to negotiate seriously

Fri, Jun 12, 2015
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The women behind Ukraine finances: central bank chair Valeriya Hontareva (left) and finance minister Natalie Jaresko

Ukraine’s Western creditors have responded angrily to Ukraine’s threat to default.

According to the Financial Times they have issued a statement, which reads in part:

“Minister Jaresko has been in possession of a detailed IMF-compliant solution from the Bond Committee for over a month. We are deeply concerned about the stance the minister is taking, which is not in the interests of Ukraine. We are ready and willing to start talks at any time.”

According to the Financial Times “a person close to the situation said investors rejected the idea that their proposal would deplete reserves and put the country in crisis, saying that to do so would neither be right nor make sense, as it would destroy their investment.”

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It appears that the situation is in total deadlock with the talks close to breaking down and both sides accusing the other of intransigence.

It is difficult to believe that Ukraine’s Western creditors actually want the country to default, though as we have discussed before, it probably makes more sense for them to allow this than to agree to the demands Ukraine is making. If Ukraine were prepared to negotiate seriously by moderating its demands, it is likely that some sort of deal could be stitched together.

It seems the Western creditors are coming up against the same problem the Russians repeatedly encounter in their dealings with Kiev and which previously confounded Yanukovych --- the Maidan movement does not negotiate but makes maximalist demands, in this case essentially for a debt write-off --- that they are politically incapable of retreating from. Rather than retreat it is easier for them politically to let the whole house burn down.

Unlike Greece a settlement of Ukraine’s debts ought not to be difficult. Ukraine is intrinsically a rich country.  It should certainly be able to pay its debts, which are not especially large, if the economy were well-managed and if a serious attempt were made to settle the political conflicts with Russia and with the people of the Donbass that are at the root of the present crisis.

The problem is that the government of Ukraine is wholly focused not on stabilising the economy but on “winning” its political conflicts with Russia and with those it calls “the separatists” in the Donbass. It assumes everyone else --- be they Western governments or Western creditors --- are simply there to help it do so.  

As for Ukraine’s debts or its economy or the economic welfare of Ukraine’s people, they can be sacrificed to achieve the overriding objective of a “victorious” monocultural unitary Ukraine.

It is this intransigent way of thinking that is pushing Ukraine towards default, just as it is what is behind the war in the Donbass.

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