[LINK] "Invaders Can't Expect Debt Repayment"

[rfmcdonald]

Leonid Bershidsky writes about the decision of the IMF, and possible future decision of a British judge, to consider Russia's invasions of Ukraine as justification for Ukraine to default on a debt to Russia.

The recent International Monetary Fund decision to change its rules so it can lend to countries in arrears on debts to other countries sets the stage for one of the most interesting legal battles of 2016, one between Russia and Ukraine but with a British judge as arbiter.

The rule change, made on Tuesday, appears to have been timed to allow Ukraine to default on a $3 billion bond it issued directly to Russia in December, 2013. It comes due on Dec. 20, and Russia has refused to restructure it on the same terms as Ukraine's private creditors did last summer. The IMF used to withhold funding from countries that were in arrears to other sovereigns, forcing them to reach restructuring deals.

That's no longer a requirement.

[. . .]

The elephant in the room is that Ukraine is the only nation in modern history to owe a debt to a country that has annexed part of its territory, the Crimean peninsula. Medvedev and all other Russian officials pretend the annexation never took place. Neither the prime minister's interview nor Finance Minister Anton Siluanov's article in Thursday's Financial Times mentions Crimea in the context of the bond dispute. Both Russian officials pile on legal arguments, discuss the IMF's treachery, speak of the creation of dangerous precedents -- but they never admit that the dispute between Russia and Ukraine makes this about far more than a $3 billion debt.

The IMF cannot mention Crimea and Russia's support for armed separatists in eastern Ukraine, either. On the surface, these circumstances have nothing to do with lending into arrears. Fund officials even suggest that the rule change has nothing to do with Ukraine. It was long contemplated to reduce China's leverage in cases of poor nations that depend on Chinese loans; these debts had the potential to cut those countries off from IMF aid. Yet the timing of the change clearly suggests that the IMF considers Ukraine's situation special because of Russia's depredations against it, and that though it recognizes the Russian bond as sovereign debt -- something else it has never admitted officially -- it doesn't care if Ukraine pays it.