Putin Needles IMF as Russia Prepares Plan for Ukraine Default

  • Russia calls on IMF to boost Ukraine loan to help repay bond
  • Finance Minister says preparing action plan in case of default

President Vladimir Putin called on the International Monetary Fund to help Ukraine repay a $3 billion bond due December, as Russia said it was weighing plans for a possible default on the debt.

The Washington-based fund is preparing to allow countries supported by a loan program to default on debt to official creditors, Finance Minister Anton Siluanov said at a government meeting with Putin on Tuesday. Current policy only allows member states to miss payments to private investors, meaning Ukraine would risk a $17.5 billion loan from the IMF by not fulfilling obligations on the note.

“Seems to me it’s easier to go this way, add these $3 billion, so that they can pay and everybody’s fine,” Putin said at the meeting. Russia has so far waived its right to call early repayment of the bond to avoid putting Ukraine in a difficult position, he said.

The bond, which Russia bought from former President Viktor Yanukovych in 2013, remains a wildcard in Ukraine’s debt overhaul, needed to keep an IMF-led bailout on track and help lift the country from recession. The Finance Ministry has invited investors holding $18 billion in bonds, including Russia, to vote by tomorrow on restructuring terms agreed on with a group of creditors led by Franklin Templeton.

Changes to the IMF approach "would be done exclusively to freeze payments” to Russia, Siluanov said. The Finance Ministry is preparing a "concrete plan of actions" in case of default, including taking Ukraine to court on the bond, he said.

Olga Stankova, a spokeswoman for the IMF, wasn’t able to immediately comment.

While Ukraine has offered holders of notes maturing in September and October this year favorable terms compared with other investors, Russia isn’t part of the sweetened deal.

Ukraine’s Finance Minister Natalie Jaresko briefed Siluanov on restructuring terms on Friday, calling on Russia to accept the deal offered to other creditors, that helped the bonds rally more than 20 cents on the dollar since the agreement in August. Those terms include a 20 percent reduction to face value, higher average interest payments and warrants that allow investors to recover part of their concessions, depending on the country’s economic performance.

Russia isn’t planning to compromise on the debt, the Russian state news service RIA reported Friday, citing Siluanov.

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