IMF to Change Its Lending Policy for Ukraine
Western allies of Ukraine are preparing to accelerate planned changes to the International Monetary Fund's (IMF) lending policy to prevent Russia from obstructing the financial aid package for Ukraine.
The current IMF policy prohibits the Fund from lending to countries with outstanding debts to other states. The Kremlin has reportedly rejected Ukraine's invitation to participate in debt restructuring and demanded the repayment of all $3 billion owed by the end of the year. This potentially jeopardizes the $17 billion in financial assistance to Ukraine from the IMF and other western aid tied to the Fund's program.
However, the United States and other western shareholders are preparing to change the IMF's lending policy next month to continue the lending program for Ukraine, even if Kyiv does not repay its debt to Russia.
Ukrainian Finance Minister Natalia Yaresko stated that Russia's participation in debt restructuring presents an opportunity for 'depoliticization of the issue, as it proposes the same approach as with our other creditors'.
Douglas Rediker, a senior fellow at the Institute for International Economics and former U.S. representative on the IMF board, stated that changing the policy would allow the IMF to avoid a scenario where Russia could hold Ukraine and the Fund hostage.
It is worth noting that Russia purchased $3 billion in bonds during the final days of Viktor Yanukovych's government, just weeks before the president was ousted by pro-democracy protestors in early 2014.
The IMF has been considering revising its lending policy regarding other debts for many years, so the current move is aimed not only at Ukraine.
'Reforming lending within the International Monetary Fund, including the policy of moving away from debt dependency on official bilateral creditors, has been part of the Fund's agenda for a long time,' said an IMF spokesperson. 'Our work in this area continues.'
Given that Ukraine hopes to achieve another IMF bailout tranche by the end of the year, and the need to repay the Russian Federation loan by the end of December, the board's decision in November will give the green light for further financial assistance from the Fund, despite a potential default in Ukraine.
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