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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

IMF Forked Over, Default Was Averted,But Debt Rose

8 June, 1999 - 00:00

By Iryna KLYMENKO, The Day
The International Monetary Fund Board of Governors unanimously voted May
27 to grant Ukraine a $181 million loan and a $366 million supplementary
financial aid package.

There is no information as yet whether the Ukrainian government has
managed to fulfill one key IMF recommendation - to reschedule (preferably
with a grace period) its debt to the Dutch ING Bank N. V. The bank's decision
was expected on May 28. Judging by the fact that the IMF has finally allocated
aid to Ukraine and intends to link debt rescheduling with the next installment
(around the end of June), the government has every chance to secure "voluntary"
flexibility from private investors. Incidentally, Western experts have
already hastened to call the ING debt rescheduling a dress rehearsal for
restructuring all other Ukrainian debentures. It should be noted that the
week before last, US Secretary of the Treasury Robert Rubin said in Congress
that the US as the IMF's main donor is categorically opposed to borrower
countries repaying their private loans with money from the credits they
receive. He stressed that this touched upon the more serious problem of
whether such countries are at all capable of earning the hard currency
needed to pay off their debts.

True, not only the American creditors, but also the Paris Club (i.e.,
government creditors) is calling for a new campaign to reschedule international
bonds of the developing countries in order to ease the burden of governments
carrying out transformation reforms.

Of course, such an attitude of the big creditors to smaller ones should
please countries like ours. Indeed, it is now all too clear that debts
of the size we have, which eat up to 50% of all budgetary revenues, have
become an obstacle, not an incentive, to reforms. However, there is a weak
spot here: political ultimatums virtually never work in negotiations with
private creditors. The latter are much more straightforward: they will
only agree to discuss a deferment of debts or new loans if they know how
the money will be returned to them.

 

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