​Ukraine to keep paying on debts, Jaresko said

UKRAINE - In Brief 19 Jun 2015 by Dmytro Boyarchuk

On June 22nd Ukraine will pay $73.3 million of interest to Russia on $3 billion Eurobonds, Finance Minister Natalie Jaresko said today during briefing. In fact, this payment was the main intrigue after the IMF agreed to finance Ukraine disregard potential problems with debt servicing. As we wrote previously, we consider that failure to pay on debts would mean for Ukraine more problems than benefits and that is why we do not believe in such scenario. Quite confusing messages from the IMF only affirms us in such view. In particular, Christine Lagarde said that international reserves cannot be used for sovereign debt service without the government incurring new debt. This could be read as prohibition to pay from international reserves. However, the trick is that Ukrainian authorities consider all foreign currency on all accounts of state institutions as gross international reserves. In particular, for the moment more than USD 1 billion is located on treasury accounts and they are accounted as part of gross international reserves. So it is not clear whether Christine Lagarde prohibited using this money or not since they are both a part of international reserves and a part of fiscal capacity of Ukrainian government. All in all, the developments we observe (including readiness to pay Russians) reassure us that neither Ukrainian authorities nor the IMF are ready to announce default.

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