REUTERS
An updated proposal sent by Ukraine's Finance Ministry to the Ad-Hoc Committee of Creditors includes significant debt reduction and proposes a value recovery instrument for debtholders should the situation in Ukraine significantly improve, according to an announcement on the ministry's website.
"This proposal includes significant debt reduction, maturity extensions, and a coupon structure ensuring Ukraine's debt burden is sustainable in the medium term, managing the pressure on Ukraine's balance of payments and its financing needs. Furthermore, it proposes a value recovery instrument for debtholders should the situation significantly and durably improve beyond the projections of the [IMF-supported] Extended Fund Facility program," the announcement said on Friday.
According to the ministry, Ukraine has both a liquidity and a solvency problem. Therefore, reprofiling its debt will not be sufficient. A simple debt extension does not resolve the massive pressure on Ukraine’s financial system from the debt load, largely placed on the country by the Yanukovych regime which had borrowed approximately $40 billion.
Moreover, the international reserves managed by the National Bank of Ukraine cannot be used to repay sovereign debt and raiding reserves would hinder Ukraine's return to financial health. This point was confirmed in the statement of IMF Managing Director Christine Lagarde of June 12. Therefore, proposals by the Committee to use $8 billion of those reserves to repay 40% of the sovereign debt cannot and will not be accepted. Instead, a debt reduction is needed, as Ukraine's repayment capacity is limited to its fiscal capacity.
Today, Ukraine remains current on its obligations, including the coupon due on the eurobond maturing in December 2015. "However, the Ministry notifies creditors within the debt operation that, unless a negotiated solution is found in the weeks to come, it will be forced to use the tools available to the Ukrainian government and provided recently by our coalition partners in parliament in order to maintain and strengthen the nation's financial health," the ministry said.
As UNIAN reported earlier, Ukraine entered debt restructuring negotiations on March 13 immediately after the approval of the IMF's EFF worth $17.5 billion. Ukraine hopes for maturity extensions, partial coupon and principal debt reduction, expecting to save up to $5.2 billion on debt repayments in 2015 and up to $15.3 billion in the next four years.