Russia Will Vote Against Further IMF Bailouts for Ukraine

Ukraine should pay back the $3 billion loan it received from Russia before receiving more IMF aid

Thu, Sep 15, 2016
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Um, Miss Lagarde…we are against you giving more money to Ukraine

Sorry Kiev, Russia will vote against providing additional IMF aid to Ukraine today, Finance Minister Anton Siluanov said.

Russia will vote against the allocation of the third tranche of capital to Ukraine during the IMF board meeting on Wednesday. On Monday, Siluanov said Russia was opposed to providing further funding because the Ukrainian government has yet to pay Russia the $3 billion it owes from the previous government’s debt. The IMF ruled earlier this year that Ukraine had to pay that loan before qualifying for IMF packages.  So far, that has not been much of a road block.

The rules for the resumption of IMF deal changed in Kiev in December 2015 so that the Russia loan was separate from the IMF’s decision to provide credits. The IMF program is for a total of $17.5 billion over the next three years.  Two tranches totaling $6.7 billion have already been handed over to the Ukrainian government, still reeling from a years-long economic and political crisis that has part of its territory controlled by the Russians.

“We will vote against this resolution because we believe it is taken in non-compliance with regulations,” – said Siluanov. Russia is an IMF lender and member of its Board of Directors . To pass the third tranche, Ukraine just needs a simple majority of the IMF board to agree. Russia represents only 2.6% of the vote while the United States represents 16 54% and is in favor of the bailout.

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Ukraine took out a $3 billion loan from a Russian national wealth fund in December 2013. It remains unpaid. The bonds were due in December. Ukraine argued that the bond was a private debt instrument and therefore does not count under the IMF rules that all other sovereign debts have to be paid or restructured in some way before an IMF agreement can be reached. The IMF supported the position of Russian back then, saying that the sovereign debt credit was indeed a loan from the Russian government and not a private body. Kiev imposed a moratorium on repayment of the debt to Russia and the dispute remains. In February 2016, Russia’s Ministry of Finance filed a lawsuit in the High Court of London to recover the $3 billion from Ukraine, including of $75 million and legal fees. The court is supposed to review the case in January.

Meanwhile, Ukraine will likely get the third tranche of the IMF loan. Ukraine’s Economic Development and Trade Ministry said last week that Ukraine’s GDP between January and July grew at 0.7%. The government predicts a 1% growth rate this year, compared to negative rates for all of 2014 and a return to negative output in the first quarter of this year.

Ukraine and Russia have been locking horns since 2014 when civil unrest led to the ouster of pro-Russian leader Viktor Yanukovych. Many analysts argue that the country’s oligarchs continue running the country as they did prior to a more pro-Western government. Last December, Joe Biden spoke with the Ukrainian parliament urging them to fight corruption within the system to better use the billions of aid money that’s been flowing into the country for the past two years.

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