Ukraine’s prime minister says the country will not pay back its USD three-billion debt to Russia despite Moscow’s warning that it would take legal action against Kiev if it misses looming deadline for the debt redemption.
Addressing a cabinet meeting on Friday, Arseniy Yatsenyuk said Kiev had decided to impose a “moratorium” on the Russian bond, meaning the Ukrainian government would officially default on the bond due on December 20.
“From today we are halting payments on this debt,” said the Ukrainian premier, adding, “I stress, once again, that we are ready for a legal process with the Russian side.”
The announcement came a week after Russian President Vladimir Putin instructed the government to take Ukraine to court should the Kiev government fail to repay the debt on time. Kiev has a 10-day grace period to pay debt to Moscow after the late December deadline.
The two sides have been engaged in a dispute over the USD three-billion loan given by Moscow the government of former Ukrainian president Viktor Yanukovych shortly before his ouster in 2013.
Officials in Kiev argue that the loan is not a sovereign one granted by a state to another and is subject to terms agreed of an agreement with its other creditors, but Moscow says it cannot be considered private debt and has refused such conditions.
Kiev has been trying to give a political dimension to the debt, suggesting that Moscow bought Ukrainian bonds in December 2013 in what it calls an act of bribery by the then president, a close ally of Russia.
In November, Putin proposed a three-year debt restructuring program provided that loan guarantees were in place from the US, the EU and the International Monetary Fund (IMF).
But Kiev rejected the offer as its Western allies seemed to be unwilling to offer such guarantees.
“Russia has refused, despite our repeated attempts to sign the agreement for restructuring, to accept our proposals,” Yatsenyuk said during the Friday speech.
The IMF has taken Russia’s side and recognized Ukraine’s debt as sovereign, meaning Kiev would have to declare default if unable to pay.
Moscow-Kiev relations have been strained since Ukraine’s Black Sea peninsula of Crimea rejoined the Russian Federation following a referendum in March 2014.
Ties soured further after Ukraine launched military operations in April 2014 to silence pro-Russia forces in the country’s eastern regions of Donetsk and Lugansk.