Ukraine gets major debt relief from creditors -- except Russia

Struggling against Russia-backed separatists and a shrinking economy, Ukrainian officials said Thursday that they had secured major debt relief from the country’s creditors.

Prime Minister Arseny Yatsenyuk said at a Cabinet meeting in the capital, Kiev, that the special committee of creditors had agreed after months of negotiation to write off 20% of Ukraine’s $18 billion in bonds held by the foreign lenders and to postpone the next payment deadlines on most of the rest until 2019, the Ukrinform news agency reported.

A fact sheet on the deal put out by the Ukrainian Finance Ministry and the committee of creditors said the agreement should provide Ukraine with $3.6 billion in debt relief to help close its more than $15 billion funding gap for the national budget.

The debt relief deal, reached after all-night talks, still needs the approval of creditors outside of the committee but most are expected to sign off on the terms. Russia, however, signaled that it would not be providing relief.

Russian Finance Minister Anton Siluanov was quoted by the Tass news agency as saying that Moscow will insist on full repayment of the $3 billion in Eurobonds due from Ukraine in December.

Ukraine’s economic woes have intensified over the last two years and GDP is forecast by the World Bank to shrink by 7.5% this year.

Already deeply in debt at the time, Ukraine was paralyzed by a three-month rebellion that broke out in late November 2013 against former President Viktor Yanukovich’s attempt to derail a trade and political deal between the ex-Soviet republic and the European Union. The revolt culminated with Yanukovich fleeing the country for refuge in Russia 18 months ago.

The new president and parliament elected last year have been denounced by the Kremlin as illegitimate and a threat to the mostly Russian-speaking eastern Ukraine population.

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 Kremlin is also accused of arming and instigating the pro-Russia separatists, who control the eastern Ukrainian regions of Donetsk and Luhansk.

Disrupted commerce and industry in the rebel-held east has accelerated the Ukrainian economic contraction and the war has forced the nearly bankrupt Kiev government to divert billions to bolster defenses. Ukrainian President Petro Poroshenko has estimated the burden on state coffers at $5 million a day from the war that has taken at least 6,500 lives, by United Nations estimate.

Ukrainian government and separatist leaders agreed in February during talks brokered by European leaders to a peace plan that was supposed to quell the fighting and impound heavy weapons. The agreement has been violated almost daily, but the combatants agreed Wednesday to make another attempt at a cease-fire beginning Sept. 1, to coincide with the start of the new school year.

Fighting continued to escalate, though, with the Ukrainian military on Thursday reporting seven troops killed and 13 injured in the previous 24 hours.

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