Does Ukraine's Economy Face Threat of being Controlled by International Creditors?

• 05.20.2015, 20:45
•  Region,  World

The Ukrainian parliament has approved the law of granting the government right to impose moratorium on foreign debt payment, TASS reports. Ukraine has to pay $30 billion of foreign debt and $17 billion of domestic debt in four years.

The Prime Minister Arseniy Yatsenyuk turned to its Western partners for grant, because the country needs real financial assistance. The country has received $9 billion financial aid in loans from IMF and foreign creditors and it should pay back $14 billion to them.

According to the Prime Minister of Ukraine the total debt amounted to $72 billion for last year and they have reduced it by almost $3 billion. The country is planning to pay about $4 billion of its foreign debt from the budget of 2015, which is equal to the country's total expenditure on the national security. Although the country gets assistance from international partners the burden of the debt is not lifted from the people of Ukraine.

Yatsenyuk noted that the government called their foreign private creditors to pay attention to their request on restructuring the country's debts which are held by private creditors. They expect to get income of about $15 billion from restructuring. According to him the government asks to grant them the right to impose a moratorium on foreign debts. By this  the Ukrainian government wants them to pay the debt but on the terms that are proposed by the government.

The request was rejected by many Ukrainian bond holders, such as London, U.S. and Russia, because each of them holds $8.9 billion, $10 billion and $3 billion worth Ukrainian bonds respectively.

Moratorium on foreign debts payments in Ukraine would mean a technical default. The general look at the proposed scenario seems negative for Ukraine. It will not solve the problem, but the consequences will be worse. The freeze will lead Ukraine to be cut off from foreign debt capital market.

The situation reminds the case of Greece. Although International creditors give loan when the country needs financial assistance,  it cannot be considered a help, because the country has to pay interest as well, which is burden for its people. This case especially refers  to the countries, where the level of corruption is very high.

The strategy of international creditors works out well – give loan and wait to get more money. If the country can not pay back, give more loans,  which will result in  country's economy and financial sector going  under the control of the international creditors.