Jaresko prepares Ukraine public for debt moratorium

Ukrainian Finance Minister Natalie Jaresko addressed the Ukrainian people on June 26 to describe the current situation with government debt. “The burden of the current economic and financial situation in Ukraine cannot be shouldered solely by the Ukrainian people, who have already paid a very heavy price,” she said. Jaresko also stated that two of the three targeted groups selected to help the government, the IMF and official international lenders (including EU and U.S.), agreed to contribute USD 17.5 bln and USD 7.2 bln, respectively, to stabilize the situation in Ukraine. Instead, private international creditors, represented by the ad hoc committee,  “is the only one of the three groups that has so far refused to contribute to Ukraine’s recovery,” she said.

“The government is committed to finding a collaborative solution… it recognizes that the creditors … may continue to block progress toward a solution,” she said. “In this case, the government is prepared to use its existing legal power to suspend payments to international commercial bondholders … until an acceptable deal is agreed upon.”

“The Ukrainian government’s policies enjoy the support of the IMF and the G7, who both agree that the international commercial creditors must share the burden and make an equal effort,” she assured the public.

Jaresko also gave a television interview on June 28 in which she stressed that Ukrainians should not be afraid of a technical default. The IMF is giving its public support to Ukraine and it understands that debt sustainability is a key goal, she said, explaining that it can be reached either by “correct” restructuring or by a debt moratorium that will follow such restructuring.

Alexander Paraschiy: The risk of internal panic in case Ukraine announces a debt moratorium is a key concern for the Ukrainian government. Jaresko’s attempts to calm the public, however helpful it is, is a clear indicator that the government is actively preparing for the moratorium scenario. Clearly, all these messages are also for external consumption, aimed to persuade the creditors’ committee that Ukraine is serious in its intension to temporarily freeze debt repayments if such a move is needed to persuade private bondholders to give more concessions.

In any case, we continue to expect that tomorrow’s meeting in Washington – involving the representatives of the IMF, creditors and Ukraine – will prove decisive for debt operation’s outcome.