IMF expects Ukraine anti-corruption progress, has no date to decide on “Russian” bond

The IMF, before reaching a positive decision in its review, is going to wait until the Ukrainian parliament adopts the 2016 budget in accordance with IMF program objectives, IMF spokesman Gerry Rice reported during his briefing on Dec. 3. In addition, the IMF also wants “to see progress to work between the anti-corruption prosecutors in place through a transparent and credible process”, he said.

Regarding Ukraine’s USD 3 bln Eurobond owned by a Russian state fund, Rice said the IMF expects the Russian and Ukrainian sides “to conduct direct discussions on this matter.” The details on debt restructuring “must be left to the parties and their legal and financial advisors,” while the IMF “cannot get involved in the details,” he said. Regarding the status of this debt (whether it’s commercial or official, in which case Ukraine should not default), Rice said that he did not have a date for which such decisions might be made by the IMF board. Two weeks ago, an official at Russia’s Finance Minister, Svetlana Nikitina, suggested that the IMF board could consider this issue at its Dec. 8 meeting.

Alexander Paraschiy: We believe the IMF’s delay with defining the status of USD 3 bln in “Yanukovych debt” is among the key factors dragging negotiations between Ukraine and Russia on this debt’s restructuring. Recall, this debt was included in the perimeter of Ukraine’s USD 23 bln debt operation and its USD 18 bln Eurobond restructuring. Following the successful restructuring of USD 15 bln in Eurobonds, Ukraine took a commitment to not offer any better restructuring conditions to the holdouts, namely the Russian fund.

At the same time, Putin’s offer to postpone the payment of the USD 3 bln by three years would create much better restructuring conditions for the Russians. Therefore, Ukraine will only be able to talk on better conditions for the USD 3 bln Eurobond if it’s recognized by the IMF as official (or such that couldn’t have been restructured together with other Eurobonds). We understand that it would be hard for the IMF board to recognize this debt as official, in which case it would have to admit its mistake in having allowed its inclusion into Ukraine’s debt operation. However, most likely it won’t recognize this debt as commercial either. In our view, the IMF could adopt some intermediary decision, e.g. to recognize it as quasi-official.

The IMF’s position to wait until the adoption of Ukraine’s budget is fully in line with our expectations that Ukraine won’t receive a new IMF tranche until the end of this year. Meanwhile, it’s unclear exactly type of progress the IMF wants to see among Ukraine’s anti-corruption prosecutors. Precise goals have to be set and we don’t have access to them, if they exist. In general, we can state that the anti-corruption efforts will be quite turbulent and plagued by conflict.