IMF’s Christine Lagarde urges support for Ukraine’s debt relief deal

Hopes have risen of a peace deal amid continued fighting this week.

Earlier on Wednesday, a Kiev military spokesman announced two Ukrainian soldiers had been killed in attacks by separatists in the previous 24 hours.

Ukraine’s debt-restructuring agreement with creditors will probably result in a downgrade of the nation’s sovereign-credit rating to default status before leading to an improvement later, Standard & Poor’s said.

The agreement, which requires approval from Ukraine’s parliament, marks a milestone in the government’s efforts to restore its conflict-ravage economy back to health and is a major success for the pro-Western government as it seeks to push through a series of politically tough economic overhauls.

Ukraine will temporarily suspend payments on that bond and a €600 million note due in October, the Finance Ministry said in today’s statement.

Ukrainian Finance Minister Natalia Yaresko reacts during a government meeting in Kiev, Ukraine, Thursday, August 27, 2015.

“The default that our enemy was awaiting did not happen”, he tweeted (in Ukrainian).

Biden is also praising Poroshenko for reaching a deal with Ukraine’s creditors to restructure its debt. Greece’s private lenders took a massive 50% haircut on what they were owed, reducing Greek debt by €100bn.

The agreement will enable Kiev to receive desperately needed worldwide financial assistance, the Finance Ministry said. The economy of the largest country inside Europe by area is poised to contract 8.7% this year, forecasts compiled by Bloomberg show. Russian Finance Minister Anton Siluanov said Thursday that Russia would continue to insist that the loan be repaid in full.

Its Western allies crafted a rescue in February: The global Monetary Fund agreed to lend Ukraine $17.5 billion over four years, while the European Union and United States also pledged substantial financial assistance.

“Why is (the deal) important?” There have been constant clashes and accusations of violating the ceasefire from both sides. “At the moment all sides have expressed the intention of abiding by this idea”, rebel leader Vladislav Deinego said.

Russian President Vladimir Putin sent troops into Ukraine’s Crimea region after the toppling of Yanukovich, his pliable ally, and annexed the seized territory in March 2014. The mix of professional soldiers and volunteers mimics the structure of the Nazi Waffen SS unit, which also used volunteers, the Ukrainian government statement said. Moscow denies it is providing fighters or arms.