Putin Says Russia Needs $3 Billion Used to Bail Out Ukraine

Russian President Vladimir Putin said Ukraine should repay a $3 billion loan because Russia needs the money for the government’s plan to fight an economic crisis.

Russia’s Wellbeing Fund, including the debt due for repayment by Ukraine in December 2015, should be used for “our own needs” because “additional resources are needed” to implement the stimulus program, Putin told government officials Tuesday at a meeting outside Moscow.

Putin’s comments shouldn’t be taken as a demand for early repayment of the Eurobonds bought by Russia, Kremlin spokesman Dmitry Peskov told reporters. “We don’t want a Ukrainian default,” though Russia has the right to call in the debt early, Prime Minister Dmitry Medvedev told a conference in Moscow on Jan. 14.

The Russian government set out a 2.3 trillion-ruble ($34.7 billion) stimulus program for 2015 last week to confront its deepening economic crisis, with budget spending raised on social support and agriculture, while defense outlays are spared reductions and most other expenditures are cut by 10 percent. The world’s biggest energy exporter is on the brink of recession after oil prices slumped last year to the lowest since 2009 and the ruble fell by almost 50 percent against the dollar as the U.S. and the European Union imposed sanctions over Putin’s support for pro-Russian separatists in eastern Ukraine.

Bailout Deal

Early repayment of Ukraine’s $3 billion loan was not discussed at the meeting with Putin, Russian Economy Minister Alexei Ulyukayev told reporters later.

The Eurobonds Russia bought from Ukraine were the first installment of a planned $15 billion rescue agreed on by Putin and former Ukrainian President Viktor Yanukovych in December 2013. Russia halted the bailout after Yanukovych was overthrown in February last year.

The government in Moscow “really has every reason to demand early repayment” of the loan as Ukraine’s public debt has exceeded 60 percent of gross domestic product, violating the terms of the agreement, Russian Finance Minister Anton Siluanov said on Jan. 10, according to RIA Novosti.

Ukraine is in talks with the International Monetary Fund to expand a $17 billion bailout and avert a default, even as its military battles with the separatists in the Donetsk and Luhansk regions. The government in Kiev predicts Ukraine’s economy will shrink 4.3 percent this year after contracting 7.5 percent in 2014.

Ukraine plans to approach holders of its sovereign bonds to try to negotiate more favorable borrowing terms, Finance Minister Natalie Jaresko said Jan. 22 in Davos, Switzerland. The country needs $15 billion on top of the previous IMF bailout to stay afloat, according to the EU.

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