Has Kiev allowed itself not to pay on its debts?

Has Kiev allowed itself not to pay on its debts?

The Verkhovna Rada has lifted temporary restrictions from its moratorium on the payment of Ukraine's foreign debt, including $3 billion dollars it owes the Russian Federation. 242 deputies of the Rada voted for the draft law, given that 226 votes would have been enough.

The temporary moratorium on foreign debt payments was valid through July 1, 2016.

The change of the end date of the moratorium "will provide a legal basis for a search of new ways of restructuring the foreign debt," TASS reports.

The head of the budget committee of parliament Andrei Gordeev, when presenting the draft law, explained that "July 1 is the deadline when Ukraine is obliged to pay the debt, so it is necessary to extend the previously adopted law on the moratorium." 

According to the representatives of 'The opposition bloc', adoption of this law means Ukraine’s default. "This is a unilateral refusal to fulfill the obligations on foreign loans. The vote in favor of this law is recognition of default," the deputy Alexander Dolzhenkov said. Another deputy of the opposition bloc Mikhail Papiev stressed that the end date of the moratorium on the payment of foreign debt should be made mandatory by the law of Ukraine.

Previously, the Prime Minister of Ukraine Arseniy Yatsenyuk said that Ukraine has to pay $ 30 billion in four years, including a $3 billion debt to Moscow. However, on December 18, the government of Ukraine has introduced the moratorium.

Professor of the RANEPA faculty of Finance, Money Circulation and Credit, Yuri Yudenkov, speaking to a correspondent of Vestnik Kavkaza, said that, by doing so, Kiev dramatically reduces Ukraine’s financial rating. "Of course, the state cannot simply allow itself not to pay off its debts, but if it adopts such a law, then Kiev, at least, recognizes its right not to pay it. Therefore, Ukraine declares itself bankrupt. In this case, who will lend to it? " - he asked rhetorically.

At the same time, according to him, this law is mostly directed against the payment of debt to Russia. "Kiev is gradually paying off its other foreign debts, so we need to see what it will do with its other debts. Today Russia cannot force Ukraine to repay the debt. So all we can do is stop lending them more money, but we cannot demand the money already lent back. So, we recognize that the state is unable to repay its external obligations and will give Kiev no money in the future," Yuri Yudenkov noted.

A lecturer at RANEPA Vladislav Ginko, says that, regardless of whether there is a default or not, we see that Ukraine has failed to comply with its commitments. "A default is a legal term. That means that if the court orders the country to pay off its debts and the country refuses, then it means a default. After that the debt-collection mechanism determines which property to recover from the debtor to service its debt," - the expert said.

According to him, if Ukraine takes any steps to find a compromise with Russia before the court's decision, there will be no default. "It is all up to Ukraine. They are pushing themselves towards a default, which is obviously bad for the country, and, first of all, the economy. It makes Ukraine less attractive for investors, makes credits and bond issuance more expansive. In the end, Ukraine will pay more," - Vladislav Ginko expressed his opinion.

According to the economist, the debt still needs to be paid off and the court will have a final say. "But if Ukraine does not agree to a compromise, the court’s decision will be quite harsh. It will be a judgment which allows seizing of a debtor's property. If this happens, it will be Kiev authorities’ responsibility, and then when we have grounds to assume that such a decision by central government was politically motivated, because it leads to greater losses. Yes, you can pay later, but you must find a compromise and demonstrate the will to reach this compromise. But if you present creditors with ultimatums, this would have a have a very negative consequences for Ukraine’s ability to borrow in the future.” 

The analyst believes that such actions deal a serious blow to Ukraine's business and industry. "Loans will become more expensive, absolutely all future lenders will charge an additional risk premium," - he concluded.