Former Russian finance minister doubts Ukraine ability to repay bailout

2014/1/17 17:29:59

Aleksey Kudrin has strong doubts about Ukraine’s ability to come up with the money to retire $15 billion in bonds Russia will buy over the next year. Moreover, he suggests that failure to pay will result in “to steps connected with trade interaction on conditions of advantage to Russia.”

 


News and commentary from Ukraine Business Online

 

MOSCOW, Jan 17, 2014 (UBO) – Ukraine’s sudden eastward shift in policy was the result of a deal made in negotiations between Presidents Vladimir Putin and Viktor Yanukovych.

 

For Ukraine the deal provided a much-needed loan to revive a mismanaged economy on the verge of collapse. For Russia, it meant a decision by Putin to raid the National Wealth Fund of $15 billion with an unusual payback mechanism operated through Ukraine sovereign debt securities registered on an exchange in Ireland.

 

Russia’s National Wealth Fund is not intended for such purposes but in the Russian political climate, a decision by the president settled the matter.

 

There was a lot of background muttering about the raid on the Fund, but few were willing to come out publicly in opposition to a Putin decision.

 

However, strong criticism of the deal came from one of the country’s most respected experts on fiscal matters, former Finance Minister Aleksey Kudrin.

 

In an interview with Itar-Tass he noted that Ukraine’s debt securities are much less reliable and profitable than other foreign assets. “In this sense, this means the worsening of our portfolio of funds’ placement,” Kudrin said.

 

Kudrin went on to point out that “Ukraine’s situation will not improve much in three years…The matter of repaying the debt will present itself. Russia can extend the term, or buy more debt securities or refinance them. The question arises when Ukraine starts repaying the debt. What can it do? There must be certain reforms to enlist resources towards repaying the debt.”

 

Kudrin also pinpointed the “what if” questions that will arise in what he sees as Ukraine’s inevitable inability to pay the debt.

 

“Ukraine will be asked in three years whether it returns the money or agrees to steps connected with trade interaction on conditions of advantage to Russia,” the ex-minister noted.

 

Logic would suggest that if Kudrin is right, then Ukraine could look forward to controls on where it accesses consumer goods – cars for example – and serious discussions about who owns and controls the country’s pipeline system.

 

For access to the related Itar-Tass article, link below:

http://en.itar-tass.com/russia/714443 

 

Printer Friendly Page Send this Story to a Friend Create a PDF from the article