IMF Forked Over, Default Was Averted,But Debt Rose

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.