August 31st, 2015 –
PolitRussia – translated for Fort Russ by J. Arnoldski
“Ukraine has fallen into debt slavery”
Bloomberg is joyfully reporting: “The agreement on Ukrainian debt is a draw.” It is supposedly a mutually beneficial transaction, simple marketing in all of its kindness:
“The debt restructuring which Ukraine has agreed upon with private creditors has all the signs of a mutually beneficial transaction. The government can boast that they convinced investors to agree to a reduction in debt, and creditors can congratulate themselves for the fact that they have, in reality, lost almost nothing. The deal concluded on Thursday will write off 20 percent ($3.6 billion) of the nominal value of Ukraine’s public debt out of $18 billion. If they can successfully agree on the same conditions in regards to some government guarantees and some municipal bonds in Kiev, then the sum of write offs will increase to $3.8 billion. All principal repayments will by postponed by four years from 2015-2023 to 2019-2027, and a guaranteed rate of bond interests will be raised from the current average of 7.22 % to 7.75%.
Ukraine’s creditors will also be tied to the growth of guarantees, providing compensation to them in the case of a development of the Ukrainian economy by at least half of the pace which the IMF predicts. For lenders, it is almost a meaningless deal. In current value terms, the new agreement guarantees them about the same redemption payments as before.”
Just benefactors, and not creditors! Perhaps something isn’t right … Bloomberg also reports: “Ukraine demands that Russia agree to the same conditions for three billion dollars of bond debt, which is to be repaid in December. From a financial point of view, Russia will lose nothing if it agrees to this demand: cash flow before the end of 2019 will be worth slightly more than the expected principal repayments. However, the Russian Finance Minister, Anton Siluanov, has refused restructuring, once again showing that for Russia it is a political issue.”
Here it is: it turns out that demanding to repay debts on time is a political question. But let’s look at what is happening more closely. Reuters supports the optimism of Kiev and the West: “Kiev is celebrating a compromise with creditors, excluding Russia. Thanks to the fact that lenders have reciprocated, our country will actually receive significant financial relief and will be able to quickly return to a stable financial growth,” Finance Minister Jareseko wrote.
Ukraine will spend freed monetary resources “on the purchase of Russian gas in the coming winter and maintaining the stability of the hryvnia, which fell last year by 50 percent,” the Finance Minister of Ukraine believes (but the money is needed: the Eurocommission once again refused Kiev preferential financing for purchasing Russian gas, and Gazprom, in the arbitration of Stockholm, demands from Ukraine $27 billion for failing to fulfill conditions of delivery).
On the issue of restructuring debt, Russia has taken a firm stance: “We will insistently demand the return of $3 billion from Ukraine in December, taking into account the relevant interest…We’re not going to restructure, and we will not pass any changes to the procedures and rules which were provided by the National Welfare Fund.”
The Ukrainian Prime Minister, Arseniy Yatsenyuk, proudly replied: “Under no circumstances will Russia receive better conditions than other creditors,” and Jaresko clarified: “I think that the best thing for them (Russia) is to participate (in negotiations over restructuring debt), because there is nothing else we can offer legally or practically.” The American economist Anders Aslund expressed frankly: “Regarding the debt of Yanukovich to Russia, it is generally not worth it to repay it. The US and EU should provide full legal and financial support to Ukraine and insist on the cancellation of this debt.”
How interesting! And on what basis do such liberties rest? Yatsenyuk, showing honest eyes, explains: “Russia was not a member of the creditor committee, and yesterday Russia acted as if they wanted to receive the whole amount of money. I can give them some advice: the ones who took the money were granted political asylum in the Russian Federation…let them demand the money from them, or let them come back here and with pleasure we will procedurally act with each of them who received money and looted the funds of the Ukrainian state.”
But hold up! Ukraine received the money in December, 2013, and the Maidan began on November 21, 2013. Yanukovich left his post in February, 2014. This is what he personally managed to plunder?! Although the idea of course is great, I will agree only if they return all the repayments of debts to Tsarist Russia, as well as compensate for those payments which it [Russia] paid alone as a legal successor to the USSR, and which all the other former republics are humbly silent about.
Alright, we won’t digress, but what is there that’s all roses and pink ponies? Not much. Breaking news appeared online:
“The official representative of the Creditors Committee of Ukraine from the Blackstone Group International Partners LLP said on air on Bloomberg Live TV that “the victorious revelation of Kiev about the writing off of 20% of the main body of debt is an absolute bluff. The committee only agreed to consider a 20% write-off in principal only after similar steps were taken by Russia. Apparently, however, Kiev cannot count on this. Therefore, it would be premature to talk about the fact that the Creditors Committee of Ukraine agreed on debt relief. At the moment, it is an absolute bluff designed for a necessary reaction of Russia to Ukrainian authorities.”
True, the source is not very reliable and there is no link to the video. However, Alexander Rogers clarifies the situation:
“Firstly, according to the press service of the Ministry of Finance of Ukraine, these agreements concern 14 state and state-guaranteed Eurobonds totaling approximately $18 billion. But Ms. Jaresko said that she agreed with the creditors who are responsible for “almost half of this amount”, that is, somewhere around $9 billion (or less). That is, the cancellation will not be $3.6 billion, but $1.8 billion. The “victory” thus immediately becomes two times smaller. Secondly, the Cabinet of Ministers of Ukraine has confirmed that among those Eurobonds on the total list of bonds to be restructured are ones issued in exchange for loans from the Russian Federation. But Russia and its officials have already stated that no restructuring will be considered. Thirdly, “debt can be reduced by $3.8 billion if external credits guaranteed by the state for state enterprises, as well as Eurobonds for the city of Kiev, which are not included in the preliminary conditions, will be restructured.” They did not agree on this, but in the report on the “victory,” Yatsenyuk already included these. Fourthly, the bonds will be exchanged for 9 new series of Eurobonds, the new interest rate of which will amount to 7.75%. Government “experts” write that the increase of the coupon will be approximately 0.5% compared to the weighted average rate in accordance with the current contractual terms. The redemption will happen in nine equal installments between 2019 and 2027, that is, nine years by an additional 0.5% of the 9 billion – that means another 4.5%, or $405 million. Thus, the “victory” is reduced by yet another 400 million, thereby totaling only $1.4 billion. And this is even according to the version of the junta.”
The economist Taras Kozak, who is completely loyal to the regime, writes on the issue of debt restructuring:
“It is most unpleasant. Ukraine is obligated to provide creditors with special stocks, which upon a growth of the economy by 3%, would allow contemporary creditors to collect gigantic profits for 20 years, from 2021 to 2040. While in the first five years there are restrictions on our payments at the level of 1% of GDP, that is, more than $1.2 billion annually, nothing has been said about the following 15 years. And with the growth of our economy at the level of 7-8% per year (China’s grows by more than 10% annually), creditors will receive perhaps much more in addition to the whole $3-4 billion each year. “
I, of course, am skeptical about growth of the Ukrainian economy, but the conditions of the transaction are specific regardless.
Everything is simple: on the one hand, Globalization needs a hot bed of destabilization next to Russia, and therefore they will from time to time “bring an oxygen tank” to Ukraine, but solely on the principle “so that she won’t die.” Regarding the state specifically, I draw our attention: what will be with the citizens? This is their personal affair. Foreign capital is simply putting Ukraine under its control. No debts to anyone have been cancelled; the payments have just been delayed and Ukraine is obliged to pay for each percent of GDP growth for the next couple of decades.
And do you remember when Yanukovich was offered $15 billion at 5% per annum?
And finally, remember that the investment fund Franklin Resources, which recently collected Ukraine’s debts, has a reputation for being a “financial vulture” and no philanthropy has been previously seen.
And regarding Russia’s debt in Eurobonds, the constitution of the IMF strictly prohibits the financing of countries with outstanding official debts, and this hints at the difficulties in the event of a failure to pay. It’s not necessary to point out Greece. There, debt securities were issued under local law, so the Greek parliament could simply pass a necessary law, but here Ukraine has borrowed money under the laws of the UK. Presenting the situation as one in which “the House of Lords is flushing down the toilet its reputation as the financial center of England for the sake of the Ukies” might be already more of a Ukie thing.
Well soon it will be a circus…Grab a seat in the front row!