Russia opposes IMF loan tranche to Ukraine

Russian Finance Minister Anton Siluanov said on Sept. 12 that the Russian representative to the IMF will vote against providing the next loan tranche to Ukraine. “We will vote against this decision since we believe that it was not approved in accordance with the existing rules,” he said, as cited by the Interfax news agency.

Siluanov was referring to Russia’s claim that the loan will be extended despite Ukraine’s outstanding debt of USD 3 bln to a Russian fund. He said the conclusions of the Russian side will be sent to the IMF managing director, in a statement that we believe also referred to this debt.

Recall, the IMF has scheduled a board meeting for Sept. 14 to consider approval of a second review conducted under the Extended Funds Facility (EFF) program, which should result in the provision of a third loan tranche for Ukraine. In 2015, Ukraine received two tranches from the IMF at a total amount of USD 6.7 bln.

Alexander Paraschiy: Ukraine apparently has fulfilled all its commitments necessary for the IMF to approve the results of the second review. At the same time, Russia’s position seems to be that Ukraine does not meet a criterion that a borrower is “making good faith efforts” to resolve its outstanding debt. This criterion is important for the IMF, given that Ukraine has an overdue debt to a Russian fund in the amount of USD 3 bln (net of interest).

Based on earlier comments by IMF spokesman Gerry Rice, we can see the IMF is trying to distance itself from taking a side in the conflict as he repeated themes such as “the IMF is not part of the negotiations” and “the IMF encourages Ukraine and Russia to find a cooperative solution.” Therefore, we expect the IMF board will close its eyes this time on Ukraine’s possible violations of “good faith efforts.”

Alternatively, we believe the IMF can 1) approve the second review of its EFF program with Ukraine, thus recognizing that Ukraine has fulfilled all its commitments under the program and paving the way for Ukraine to receive loans from other Western partners, including U.S. guarantees for USD 1 bln and loans from the EU for EUR 0.6-1.2 bln; but 2) postpone the decision for the loan tranche, referring to its internal policy of “Lending Into Official Arrears.” Such a scenario won’t be harmful for Ukraine, which still will be able to receive a large part of international financial support expected by the end of this year.