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IMF's dilemma: to help or not to help Ukraine, if Kiev defaults

It is not ruled out that the IMF may play up to Ukraine and render it financial assistance after Kiev's possible default is declared, although the Fund's rules prohibit lending to countries with the unrepaid external debt. But the IMF may realize that indulgences for one country may give a bad example for other borrowers, experts polled by TASS say.

Ukraine's default may be declared, if Kiev fails to repay its $3 billion debt to Russia by December 20 or refuses to accept the restructuring terms offered by Moscow. The IMF has recognized Ukraine's debt to Russia as official Kiev's sovereign liabilities. However, the Ukrainian authorities have refused to pay, claiming that the Eurobonds purchased by Russia were a private rather than a government loan granted to then-President Viktor Yanukovych in 2013.

Russian President Vladimir Putin said at a meeting with IMF Managing Director Christine Lagarde at a G20 summit that Russia was offering Ukraine to repay its debt by installments over the next three years against the guarantees of the United States, the European Union or an international financial institution.

No such guarantees were provided and the Russian Finance Ministry announced on Saturday that Russia would file a lawsuit against Ukraine with an international court.

There were instances in world history when Western financial institutions changed the rules of the game in favor of their political proteges, said Andrei Klimov, deputy chairman of the Committee for International Affairs at the Federation Council, the upper house of Russia's parliament.

"The United States plays the role of the main violin in the IMF while the role of the second violin is played by the European Union. These are two basic sponsors of the Maidan — the symbol of a coup d'etat in Ukraine in 2014. It is not ruled out that for the sake of supporting the Kiev regime, which the West has brought to power, the IMF will revise the rules of the game and decide on providing Ukraine assistance even after a default is declared," Klimov said.

The senator said, however, that Ukraine might not get a new loan tranche from the IMF as the country had not yet approved its budget for 2016 over the absence of a coordinated tax reform draft. In his opinion, it is no coincidence that the visit by US Vice-President Joe Biden to Kiev on Monday preceded today's meeting of the IMF Board on Ukraine.

"It is obvious that Joe Biden wanted to understand the situation with corruption in the Ukrainian government and assess whether or not Washington's creatures might turn into political zeros in the near future. Meanwhile, the $190 million aid Biden promised to Kiev is a talk about nothing," the politician said.

According to Klimov, if the IMF decides to meet Ukraine halfway, some of the IMF member countries deprived of such privileged conditions offered to Kiev might resist this attempt, reshuffle cards and the United States "would have to take great efforts together with the European Union to push through their decision."

"Russia needs to file a lawsuit to an international court to clearly express its position on Ukraine's repayment of its sovereign debt. This will be a difficult litigation case. It is not known how long it will last. But Russia has no other way out," the senator said.

Professor of the World Economy Department at the Diplomatic Academy of the Russian Foreign Ministry Yaroslav Lisovolik noted that the IMF's prevalent line was to give a possibility to the countries faced with the threat of a default on their foreign debt repayment to continue receiving the Fund's assistance.

"But a question, which arises, is how closely Ukraine follows the course set by the IMF's parameters for the budget deficit and the tax reform," Lisovolik noted.

"The countries' foreign debt payment discipline is important for the IMF. As for Ukraine, possible indulgences for it would have negative aspects. Where the payment discipline is undermined, problems emerge not only with the country's further observance of its financial obligations but also with the fulfillment of the IMF's lending terms," the expert said.

Director of the Institute of Globalization Problems Mikhail Delyagin said he had no doubts that the IMF would meet Ukraine halfway.

"The Fund will give Kiev a new loan tranche on one condition that Ukraine should not pay Russia a dollar under its $3 billion debt. Legally, everything will be formalized correctly but they will oblige Ukraine to pay only to western creditors for political reasons," Delyagin said.

[Source: By Tamara Zamyatina, Itar Tass, Moscow, 08Dec15]

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