Ukraine-Russian crisis escalating as Kiev defaults on USD3 billion bond to Russia

Relations between Kiev and Moscow have become rather intense, particularly Ukraine’s Prime Minister Arseniy Yatsenyuk announced in December it will not repay USD3 billion due to Russia, which was part of a USD18 billion restructuring plan two years ago. Additionally, Bloomberg explains that this also applies to USD507 million owed to Russian banks by Ukrainian state-owned firms.

However, it is worth mentioning that this has a great deal to do with Ukraine’s debt- restructuring agreement with private creditors last year in order to meet conditions for a USD17.5 billion bailout by the IMF. Essentially, Ukraine is “barred” from repaying Russia in full. Meanwhile, some reports suggested that Russia had announced its willingness to restructure the debt, if it were guaranteed by the US, the European Union or any other major bank. No entity provided such a guarantee.

For the past two years, Kiev and Moscow have been in a semi-state of war, as Russia wants to maintain its grip on Ukraine, while the latter wants to reduce its dependence on Moscow by improving relations with the European Union, particularly trade and gas deals. In this ‘triangle’ we find that whenever Ukraine embarks on closer relations with the EU, Russia would impose further restrictions on Ukraine. In retrospect, the EU would escalate its stance towards Russia.

This situation is the latest in the standoff between the two countries. Meanwhile, Russia announced it is taking this matter to court, so we will see how things will unravel in the near future.

Source: Bloomberg, Publicfinanceinternational.org

 

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