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Are they hitting Ukraine while aiming at Gore?

08 February, 00:00

The allegations of Pavlo Lazarenko about Ukraine’s “misappropriation” of IMF loans, published late last week in The Financial Times, may essentially complicate the foreign debt restructuring scheme launched by the Yushchenko government.

Although at the end of last week our government announced it had managed to reach agreement with a group of Western banks on bond restructuring, the Dow Jones Agency aired information on Sunday that “the creditors of Ukraine, striving to secure for themselves the most lucrative conditions of debt restructuring, may resort to the threat of inflicting a default on that country.” According to agency sources, the London-based Standard Bank has already told the government of Ukraine that there are enough bonds at its disposal to officially declare default.

Meanwhile, restructuring as such is only possible if agreed to by 75% of all securities holders. The government has enlisted the consent of half the creditors. Standard Bank, controlling over 25% of the debt, obviously wants to hurry. Incidentally, according to The Financial Times experts, the restructuring will make investors lose 40% of their expected profits, which will not allow the new securities to raise the quotations of Ukrainian debts from the present 30% to 60% of face value. Thus it is not ruled out that the new threats by creditors are based precisely on these considerations. For the worse the conditions are for the government and the higher is the value of debts, the more the investor will get and the better the quotations will be.

The week before last, Ukraine failed to pay $18 million on Chase Manhattan bonds (the Deutschmark eurobond due in February 2001, issued via the fiduciary Chase Manhattan Bank Luxembourg S. A.). After the grace period on this payment expires, the bondholders can consider the question of formally inflicting a default on Ukraine and demand on this basis that Kyiv completely redeem the bonds. It is clear that declaring default will complicate the restructuring of the Ukrainian debt, now exceeding $2 billion.

From this standpoint, Ukraine is very interested in the support of the IMF, which is trying to implement its global idea of the joint responsibility of private creditors and borrowers for debts incurred. However, last week’s scandal about IMF financial aid is also aimed at neutralizing IMF influence. The Ukrainian IMF office so far refuses to comment on the situation.


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