Ukraine can not pay $3 billion Russian debt

Kiev’s move to impose a ban on debt repayments came as a total surprise as on Thursday the country’s Finance Ministry said it was committed to a dialogue with Moscow over a possible credit relief deal. Payments are frozen “until our propositions on restructuring are accepted or until a relevant court decision is made”, he said.

The Eurobond matures on December 20, but Ukraine has a 10-day grace period before it will be considered officially to be in default.

However, the International Monetary Fund has recently changed its policy on such debts, leaving the door open for Ukraine to keep borrowing even if it falls behind with the repayments.

Some diplomats in Brussels said this might be the last time economic sanctions get rolled over in their entirety as France and other members have sought to reengage with Moscow on countering terrorism and seeking an end to the war in Syria.

Relations between Russian Federation and Ukraine have deteriorated since the bond was sold as Putin annexed Crimea in March 2014 and supported a separatist rebellion in Ukraine’s easternmost regions that has killed 9,000 people.

“That means they will have nearly halved compared to the levels seen in 2013”, said Volker Treier, head of DIHK’s foreign trade department.

“The Ukranian government is imposing a moratorium on repaying the so-called Russian debt”, Prime Minister Arseniy Yatsenyuk told a government meeting.

The Kremlin has said it will suspend a trade pact with Kyiv which will exclude Ukraine from from the free market that includes former Soviet states in the new year.

The IMF has taken Russia’s side and recognized Ukraine’s debt as sovereign, meaning Kiev would have to declare default if unable to pay.

Kyiv claims Moscow has refused to discuss restructuring proposals. But Russia has refused to accept the terms it has offered, arguing that the bond was an official bilateral loan.

“Given this, as well as the IMF’s concerns voiced today about parliament’s rejection of the new tax code and 2016 budget, there seems to be a growing risk that the country’s bailout could be put on hold”. “But it’s not hard to envisage any debt talks breaking down”, he said.