Ukraine adopts laws to conduct debt restructuring

With more than two-thirds support, Ukraine’s parliament approved on Sept. 17 the legislative foundation to finalize government’s debt operation. In particular, the adopted laws allow the government to issue GDP warrants, which will be offered in exchange for a 20% haircut to the government’s debt under Eurobonds. The government is planning to finalize the debt restructuring deal by the end of October, according to its preliminary schedule.

The same day, IMF Communications Director Gerry Rice commented on the status of the USD 3.0 bln Eurobond, held by a Russian state fund, that Ukraine has included in the perimeter of its debt operation. He confirmed that the status of this bond will be established by the IMF executive board, though he did not provide a date for a possible decision. (It will either be classified as official debt that Ukraine will have to repay in December, under IMF rules, or private debt that can be restructured on par with other Eurobonds.) At the same time, The IMF sees it as important that debt restructuring ”gains broad support by all concerned Eurobond holders,” he said.

Alexander Paraschiy: The Ukrainian government made approving the debt restructuring legislation a key requirement for its populist campaign to boost minimum wages and pensions, which is why it gained broad support from parliament. As usual, the short-term benefits from the debt relief are more important for Ukrainian politicians than a likely increase in future debt obligations.

What Rice has said about the status of the “Russian” USD 3 bln Eurobond adds us more certainty that the IMF wants it to be restructured. To increase the chances for its smooth restructuring, the IMF needs to explicitly declare it as a private loan as soon as possible. The lack of a timeline for such a decision is the key risk for Ukraine’s debt operation to be finalized on time.