Ukraine Truce Shudders as PM Warns of Possible ‘Default’

Updated on
Ukraine's Premier Arseniy Yatsenyuk
Ukraine's Premier Arseniy Yatsenyuk told lawmakers in Kiev today, “To receive financial aid in order to survive in this difficult time, not to allow default, we need an international donor conference, the approval of Ukraine’s program, and to get support from our western partners.” Photographer: Martin Divisek/Bloomberg

Pro-Russian rebels killed three Ukrainian soldiers, jolting a two-day-old truce in the nation’s east as Prime Minister Arseniy Yatsenyuk called for an international donor conference to avoid a possible “default.”

The casualties follow Ukraine’s Dec. 9 decision to halt hostilities in an attempt to start new talks with insurgents its it’s fighting in the Donetsk and Luhansk regions. Ukraine needs to expand a $17 billion international bailout program that’s keeping its economy afloat after bonds fell to a record, Economy Minister Aivaras Abromavicius said yesterday, adding it’s too early to say how much more aid Ukraine requires.

“To receive financial aid in order to survive in this difficult time, not to allow default, we need an international donor conference, the approval of Ukraine’s program, and to get support from our western partners,” Premier Arseniy Yatsenyuk told lawmakers in Kiev today.

The country may need to almost double its emergency loan “within weeks” to avoid bankruptcy, the Financial Times reported Dec. 9, citing unidentified officials. Representatives from the International Monetary Fund arrived in Kiev this week to discuss further payments under the existing program and a possible expansion.

International Support

“Part of the mission is assessing the financing needs of Ukraine and how those financing needs will be fulfilled,” IMF spokesman William Murray told reporters today in Washington. “It’s really important that the donor community step up and provide financing.”

Yatsenyuk referred to the Financial Times story today, telling lawmakers it was the newspaper, not he, saying the country may need the extra $15 billion in aid.

“It is very difficult for us to get out of this crisis alone, without the support of international partners it is practically impossible,” Yatsenyuk said.

His finance minister, Natalie Jaresko, said Ukraine is “neither in default, nor in a pre-default condition,” according to an interview with weekly magazine Focus.

“This question isn’t being discussed at the government at all,” Focus quoted her as saying. “Though no one conceals that the situation is very difficult: Ukraine needs urgent stabilization of the financial sector, including the banking sector.”

Spending Cuts

She added that she has asked ministries to find ways to cut their spending by 25 percent next year, Focus reported.

Political turmoil between Ukraine and Russia and its effect on Europe is among the biggest risks to the global economy next year, Bank of Canada Governor Stephen Poloz told reporters in New York today.

Concerns are growing that the government in Kiev will be unable to repay its debts as the fighting in two eastern breakaway regions takes its toll on Ukraine’s economy. The conflict has wiped out 20 percent of the country’s economic potential, according to the prime minister.

Ukraine’s dollar bonds due July 2017 tumbled 6 cents to a record-low 67.4 cents on the dollar yesterday. The price rose to 68.2 cents today by 5:27 p.m. in Kiev, yielding 26.98 percent, or almost double the rate on bonds maturing in April 2023. The hryvnia weakened for a ninth day to 15.72 per dollar, taking its depreciation this year to 48 percent, the worst among all currencies tracked by Bloomberg worldwide.

Peace Talks

Yatsenyuk’s new government needs to adopt a 2015 budget and tax laws complying with IMF requirements to qualify for the next $2.8 billion disbursement of its bailout package. Ukraine needs the cash to repay debt, buy heating fuel for winter and stem the hryvnia’s slump.

The authorities in Kiev and rebel leaders yesterday worked on the timing and agenda for the next round of peace talks in the Belarusian capital, Minsk. A cease-fire clinched Sept. 5 has been broken almost daily, with 192 Ukrainian troops killed since then, the army said.

The conflict has triggered the worst standoff between Russia and the U.S. and its European allies since the fall of the Iron Curtain. Ukraine and its supporters blame Russian President Vladimir Putin for instigating the crisis. Russia denies involvement.

The rebels must demonstrate complete control of armed groups for the Minsk talks to go ahead, former President Leonid Kuchma, Ukraine’s envoy to the negotiations, was cited as saying by the news service Interfax.

Lysenko said a new date for talks wasn’t yet clear.

Along with the three soldiers killed, eight were wounded in attacks by militants in the last 24 hours, Lysenko said. The rebels broke the truce 22 times in the past 24 hours, the National Security and Defense Council said on Facebook today.

The rebels said they started to pull back their artillery from south of the self-proclaimed Donetsk People’s Republic, news service Interfax reported, citing a separatist leader Denis Pushilin.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE