Ukraine Says Rebels Violating Truce as First IMF Money Arrives

Ukraine accused pro-Russian rebels of breaching the cease-fire agreement as the government prepared to start debt restructuring talks after the arrival of the first international financial aid.

Insurgents attacked Ukrainian troops 61 times in the past 24 hours, firing mortars, with most violations near the city of Donetsk, military spokesman Vladyslav Seleznyov said in Kiev on Friday. Shyrokyne near the port city of Mariupol was also attacked, he said. Rebels in Donetsk have said government forces are violating the truce daily, according to news service RIA Novosti.

The International Monetary Fund approved a four-year, $17.5 billion loan program for Ukraine on Wednesday. An immediate $5 billion disbursement allows the government to start talks with creditors even as skirmishes between the army and militants continue in the country’s east. The cabinet will hold a videoconference with holders of Ukraine’s debt on Friday, with Finance Minister Natalie Jaresko expecting talks on outstanding liabilities to last until at least May.

“The debt restructurings are very political things, especially if the IMF is in town,” Gunter Deuber, the head of central and eastern European research at Raiffeisen Bank International in Vienna, said by phone. “That’s why the outcome might be better than” a 20 percent to 30 percent cut in the nominal debt value that Raiffeisen estimates is needed to strengthen the country’s finances.

A truce agreed with pro-Russian separatists appears to be holding, NATO Secretary General Jens Stoltenberg said on Thursday, while Ukraine’s army has reported dwindling casualties. “The prevailing view” among European Union members is there hasn’t been enough progress to start removing sanctions the bloc imposed on Russia over the conflict in Ukraine, Slovak Foreign Minister Miroslav Lajcak said on Friday.

Industrial Heartland

Ukraine is grappling with an economic and financial crisis after losing control over its eastern industrial heartland. The IMF says it expects Ukraine’s real gross domestic product to shrink about 5.5 percent this year, before growing 2 percent in 2016. Ukraine’s currency, the hryvnia, has lost 27 percent to the dollar in 2015.

The lull in the violence has turned attention to the government’s efforts to stave off a disorderly default. Although creditors will probably have to wait longer for payment, Ukraine will still offer to eventually pay their principal back in full, according to analysts at Commerzbank AG and Barclays Plc.

“A friendly agreement would allow Ukraine to tap international markets again this year, assuming the situation in eastern Ukraine continues to calm,” Simon Quijano-Evans, the London-based head of emerging-market research at Commerzbank said by e-mail Thursday.

The IMF aid is part of what the Washington-based lender and Ukraine’s government seek to be a $40 billion package, including contributions from the U.S. and European Union and a prospective $15 billion in savings to be negotiated with Ukraine’s bondholders.

Strategically Important

Friday’s army statements followed allegations from the previous day of insurgents’ attacks at Shyrokyne, east of the strategically important city of Mariupol on the Sea of Azov.

The skirmishes risk undermining a truce signed in Belarus last month and triggering a return to violence that has killed more than 6,000 people over the past year, according to United Nations estimates. Ukraine, the EU and the North Atlantic Treaty Organization accuse Russia of aiding the rebels. Russia denies that it’s involved in the conflict.

While NATO’s Stoltenberg said on Thursday that some heavy weapons have been withdrawn from the frontlines, monitors sent by the Organization for Security and Cooperation reported “relative” stability with continued fighting that showed heavy arms still in use.

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