The Economist explains: Ukraine's debt saga

by / Monday, 17 August 2015 / Published in Economy

UKRAINE’S economy, racked by war, is in free fall. In the second quarter of this year its GDP shrunk at an annualised rate of 15%, after shrinking by 18% in the first. Its public debt is probably worth 100% of its GDP. Small wonder, then, that Ukraine wants to cut some of the debt it owes. After months of bitter negotiations, Ukraine and its creditors may reach a deal this week. On what issues do Ukraine and its creditors disagree, and what is likely to happen?Debt negotiations have been drawn out. For months, no one—not even Ukraine’s finance minister, Natalie Jaresko—was entirely sure who owned Ukraine’s debt. It is now known to include Franklin Templeton, a big asset manager, which owns about $9 billion of Ukraine’s bonds, and BTG Pactual, a Brazilian firm. From the start everyone has recognised that Ukraine needed some debt relief. The big question was the form that such relief might take. For months the creditors argued that Ukraine’s problems would be solved by “maturity extensions”—that is, pushing out the date when bonds needed to be repaid.But this suggestion does not work, since it conflicts with the demands laid down by the International Monetary Fund. The IMF has kept Ukraine alive with a series of loans, worth about $7 billion in total since last year. The IMF provided the money under the assumption that the government in Kiev will write off …
Source: The Economy