Ukraine says it can’t pay off debt to Russian Federation

Ukraine’s prime minister says the country will not pay back its United States dollars three-billion debt to Russian Federation despite Moscow’s warning that it would take legal action against Kiev if it misses looming deadline for the debt redemption.

Yatsenyuk announced at a televised government session on Friday a “moratorium” on any debt repayments to Russian Federation. Ukrainian leaders have accused Moscow of sending troops and weapons to the east, a claim the Kremlin has vehemently denied.

“We never said there weren’t people (in Ukraine) who work on resolving various issues there, including in the military sphere”, Putin said when a Ukrainian journalist brought up the question of two captured Russians now on trial in Kiev. Payments are frozen “until our proposals on restructuring are accepted or until a relevant court decision is made”, he said.

Ukraine said it is “ready to pay the price” to join an European Union free trade zone from that date.

Ties soured further after Ukraine launched military operations in April 2014 to silence pro-Russia forces in the country’s eastern regions of Donetsk and Lugansk.

Still, William Jackson, a senior emerging markets economist at London-based Capital Economists consultancy, said Friday’s announcement “does feed into broader concerns that the country’s International Monetary Fund program is now at risk”.

The bond was acquired by and is held by Russia’s National Wealth Fund, an agency acting on behalf of the Russian government, according to a staff paper considered by the board. That involved a 20 percent write-down of bond holdings, which cut Ukraine’s sovereign debt from $19 billion to $15.5 billion.

In November, Russian President Vladimir Putin proposed a debt restructuring, saying Moscow would be willing to agree to payments of $1 billion a year between 2016 and 2018.

Kiev has been trying to give a political dimension to the debt, suggesting that Moscow bought Ukrainian bonds in December 2013 in what it calls an act of bribery by the then president, a close ally of Russian Federation.