On Ukraine’s external debt, EU suggests dialog

The European Commission has advised Thursday Ukraine to discuss the payment of its debts with its foreign creditors.

The Ukrainian parliament passed on Tuesday a moratorium bill allowing the government to cease foreign debt payments to give breathing room to the country’s struggling economy.

A European Commission official, cited by the Interfax-Ukraine news agency, said Thursday that the Commission “supported constructive dialog between [Kiev] and the debt holders”.

Russian President Vladimir Putin described Wednesday the moratorium decision as “an announcement of “impending bankruptcy”.

In effect, among Ukraine’s creditors, there is Russia with a billion bond due for redemption in December this year.

Moreover, Russian Prime Minister Dmitry Medvedev said on Wednesday that Russia had already provided billion of commercial loans to Ukraine and that they will use all options, including legal procedures, to get Russian money back.

As Ukraine’s economy, encumbered by a recession and the conflict with pro-Russian separatists in its eastern regions, struggles, Kiev is actively seeking to restructure its sovereign debt.

But negotiations with foreign creditors have proven somewhat difficult, especially since Kiev seeks to meet conditions of an International Monetary Fund bailout plan, of which the first tranche is to be issued this summer.

On April 27, the creditors agreed to a three-month respite for part of the debt, without which, Ukraine would have come close to default.

But, last week, creditors complained of lack of flexibility on the part of the Ukrainian finance ministry in a statement released on Tuesday.

The Ukrainian Foreign Ministry responded by noting a “lack of willingness to engage in negotiations” by creditors.

Moody’s downgraded the country’s credit to ‘Ca’ from ‘Caa3’ in March – the current rating is one that assumes a good chance of default. The outlook remains negative.

More than 6,100 people have died in the conflict with pro-Russian separatist rebels in eastern Ukraine, according to UN statistics.