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

Finance Minister Natalie Jaresko said Ukraine will use the saved 20 per cent to spend it on social issue and national defence. Earlier this month, Yuriy Biriukov, an adviser to Ukraine’s defense minister, said in a televised interview that the ministry needs to raise its budget to an estimated 100 billion hryvnia (US $4.71 billion) per year to increase its number of professional troops.

In exchange for providing immediate debt relief, creditors will receive a higher rate of interest once Ukraine resumes payments in 2019.

Ukraine bonds jumped by 12 per cent after news of the deal was made public. A free-trade agreement with the European Union is expected to go into effect on January 1, offering further opportunities for Ukraine in the world’s largest single market. Ukraine announced it was offering the same terms as well to Russian Federation, which is holding a bond due of $3 billion for December. But some said the deal might not be enough to put Ukraine’s economy on the right path. “Clearly more generous to bond holders than I had thought”, said Exotix credit strategist Jokob Christensen.

While battling a pro-Russian insurgency in eastern Ukraine, cash-strapped Kiev is also receiving global support to stave off bankruptcy, in return for carrying out wide-reaching political and economic reforms. The measures aim at saving $5.2 billion in debt repayment in 2015 and up to $15.3 billion in the next four years.

Russian Federation has refused to accept the same terms as Ukraine’s private sector creditors who have agreed to write down a chunk of the government’s outstanding 16 billion euros owed to them.

Kiev will have to convince at least three quarters of its bondholders to agree to the deal.

Kiev views Russia’s $3bn bond as part of the sovereign and sovereign-guaranteed bonds to be restructured under the agreement. 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.