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The IMF forgives Ukraine’s debt to Russia
by Michael
Hudson specially for the Saker Blog
9
December, 2015
On
December 8, the IMF’s Chief Spokesman Gerry Rice sent a note
saying:
“The
IMF’s Executive Board met today and agreed to change the current
policy on non-toleration of arrears to official creditors. We will
provide details on the scope and rationale for this policy change in
the next day or so.”
Since
1947 when it really started operations, the World Bank has acted as a
branch of the U.S. Defense Department, from its first major chairman
John J. McCloy through Robert McNamara to Robert Zoellick and neocon
Paul Wolfowitz. From the outset, it has promoted U.S. exports –
especially farm exports – by steering Third World countries to
produce plantation crops rather than feeding their own populations.
(They are to import U.S. grain.) But it has felt obliged to wrap its
U.S. export promotion and support for the dollar area in an
ostensibly internationalist rhetoric, as if what’s good for the
United States is good for the world.
The
IMF has now been drawn into the U.S. Cold War orbit. On Tuesday it
made a radical decision to dismantle the condition that had
integrated the global financial system for the past half century. In
the past, it has been able to take the lead in organizing bailout
packages for governments by getting other creditor nations – headed
by the United States, Germany and Japan – to participate. The
creditor leverage that the IMF has used is that if a nation is in
financial arrears to any government, it cannot qualify for an IMF
loan – and hence, for packages involving other governments.
This
has been the system by which the dollarized global financial system
has worked for half a century. The beneficiaries have been creditors
in US dollars.
But
on Tuesday, the IMF joined the New Cold War. It has been lending
money to Ukraine despite the Fund’s rules blocking it from lending
to countries with no visible chance of paying (the “No More
Argentinas” rule from 2001). With IMF head Christine Lagarde made
the last IMF loan to Ukraine in the spring, she expressed the hope
that there would be peace. But President Porochenko immediately
announced that he would use the proceeds to step up his nation’s
civil war with the Russian-speaking population in the East – the
Donbass.
That
is the region where most IMF exports have been made – mainly to
Russia. This market is now lost for the foreseeable future. It may be
a long break, because the country is run by the U.S.-backed junta put
in place after the right-wing coup of winter 2014. Ukraine has
refused to pay not only private-sector bondholders, but the Russian
Government as well.
This
should have blocked Ukraine from receiving further IMF aid. Refusal
to pay for Ukrainian military belligerence in its New Cold War
against Russia would have been a major step forcing peace, and also
forcing a clean-up of the country’s endemic corruption.
Instead,
the IMF is backing Ukrainian policy, its kleptocracy and its Right
Sector leading the attacks that recently cut off Crimea’s
electricity. The only condition on which the IMF insists is continued
austerity. Ukraine’s currency, the hryvnia, has fallen by a third
this years, pensions have been slashed (largely as a result of being
inflated away), while corruption continues unabated.
Despite
this the IMF announced its intention to extend new loans to finance
Ukraine’s dependency and payoffs to the oligarchs who are in
control of its parliament and justice departments to block any real
cleanup of corruption.
For
over half a year there was a semi-public discussion with U.S.
Treasury advisors and Cold Warriors about how to stiff Russia on the
$3 billion owed by Ukraine to Russia’s Sovereign Wealth Fund. There
was some talk of declaring this an “odious debt,” but it was
decided that this ploy might backfire against U.S. supported
dictatorships.
In
the end, the IMF simply lent Ukraine the money.
By
doing so, it announced its new policy: “We only enforce debts owed
in US dollars to US allies.” This means that what was simmering as
a Cold War against Russia has now turned into a full-blown division
of the world into the Dollar Bloc (with its satellite Euro and other
pro-U.S. currencies) and the BRICS or other countries not in the U.S.
financial and military orbit.
What
should Russia do? For that matter, what should China and other BRICS
countries do? The IMF and U.S. neocons have sent the world a message:
you don’t have to honor debts to countries outside of the dollar
area and its satellites.
Why
then should these non-dollarized countries remain in the IMF – or
the World Bank, for that matter. The IMF move effectively splits the
global system in half,between the BRICS and the US-European
neoliberalized financial system.
Should
Russia withdraw from the IMF? Should other countries?
The
mirror-image response would be for the new Asian Development Bank to
announce that countries that joined the ruble-yuan area did not have
to pay US dollar or euro-denominated debts. That is implicitly where
the IMF’s break is leading.
Putin orders Finance Ministry to sue Ukraine over unpaid debt
Russian
President Vladimir Putin has ordered Finance Minister Anton Siluanov
to file a lawsuit against Ukraine if Kiev fails to repay Russia's $3
billion Eurobond loan by the December 20 deadline.
Putin’s
order followed the Finance Minister’s Wednesday report on the debt
repayment situation. Siluanov told the President about the refusal
of the US to give guarantees on future payments of Ukrainian
sovereign debt.
“It
is strange. If they are so confident in the country’s solvency for
the next year, then they could somehow participate during the last
four years to share the risks," said
Putin.
"Fine.
File the lawsuit," he
added.
Siluanov
told reporters that Russia would apply to the courts if Kiev fails
to make the debt repayment within a 10-day grace period after the
December 20 deadline.
On
Tuesday the International Monetary Fund (IMF) agreed to change its
policy on lending to countries in arrears to other governments.
Ukraine is one of those, because it is asking for financial aid
while owing money to Russia.
Previous
IMF guidelines on lending to such countries were relatively strict,
stating that "the
IMF doesn't lend to countries that are not making a good faith
effort to eliminate their arrears with creditors."
Siluanov
called that decision "precipitated
and preconceived." According
to the Finance Minister, Russia has asked the IMF to help solve the
situation with Ukraine's debt, but was told to "engage
in negotiations [with Kiev] along with commercial creditors."
Ukraine’s
sovereign debt to Russia dates back to a deal between President
Vladimir Putin and former Ukrainian President Viktor Yanukovich that
was struck in 2013 and envisaged Moscow buying $15 billion worth of
Ukrainian bonds. Russia bought $3 billion worth in December 20,
2013, and the debt is supposed to be repaid by December 20, 2015.
In
November, Russian President Vladimir Putin offered Kiev a three-year
installment plan to pay back, but no official answer to the proposal
has been received.
From the ridiculous to the preposterous
From the ridiculous to the preposterous
Yatsenyuk says that Ukraine is ready to sue Russia for debt
http://fortruss.blogspot.fr/2015/12/yatsenyuk-says-that-ukraine-is-ready-to.html?utm_source=feedburner&utm_medium=twitter&utm_campaign=Feed%3A+FortRuss+%28Fort+Russ%29&m=1
Kiev
is ready to begin legal proceedings with Moscow regarding the return
of a loan of three billion dollars. This was stated on Wednesday, 9th
December, by Ukrainian Prime Minister Arseniy Yatsenyuk, reports the
TV channel "112 Ukraine".
"If
Russia sues Ukraine — we are ready to sue Russia, we are fully
armed," — said the head of government.
According
to Yatsenyuk, Kiev's position is unchanged — Moscow will not
receive the debt restructuring other than what was already received
by creditors.
Earlier
on Wednesday, 9 December, President Vladimir Putin instructed the
Finance Ministry to sue Ukraine in connection with failure to return
a loan of three billion dollars. After hearing the report by the
Finance Minister Anton Siluanov about the situation with the
Ukrainian debt, the President said, "Well, okay, fine, apply to
the court".
According
to Putin, Russia had asked the US, Europe or international financial
institutions to share the risk on debt and was ready to support
Ukraine. Siluanov reported to the President that unofficially,
European and American officials refused to give Russia guarantees for
restructuring the debt of Kiev.
Tuesday,
December 8, the Board of Directors of the International monetary Fund
(IMF) approved a reform that allows lending even during the default
of a country. In particular, the new rules mean that the IMF will
continue funding Ukraine, even if Kiev delays the payments for the
debts to Moscow. The Russian Ministry of Finance called the decision
to adopt reforms "hasty and biased".
The
agreement on granting Ukraine a loan of $ 15 billion was finalised in
2013. As a result, Russia bought Ukrainian Eurobonds for $ 3 billion.
The full amount of the loan was not provided due to the change of
power in Ukraine in February 2014. The Ukrainian government
repeatedly demanded to restructure the loan in general terms.
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