As anticipated the IMF approved a $1 billion loan tranche to Ukraine at its meeting on 14th September 2016. As also anticipated this was less than the $1.7 billion Ukraine asked for.
Officially the reason the IMF has provided Ukraine with less than the $1.7 billion it asked for is that Ukraine has failed to carry out all the reforms it committed itself to. Whilst that is true, a similar failure to carry out reforms did not prevent the IMF lending Ukraine money last year.
Unofficially, as I have discussed before, the true reason Ukraine has received no funding from the IMF since 2015 and only $1 billion now is almost certainly concern about the pending court case Russia is bringing against Ukraine for recovery of the $3 billion loan Ukraine owes Russia, which London’s Commercial Court is due to hear in January. As I have explained previously, in the event the Judgment goes against Ukraine, further advances by the IMF to Ukraine would be against its own rules, even after they were amended last year.
In a possible sign that Ukraine is starting to worry that it may lose the court case, RT is reporting Ukraine’s finance minister telling the IMF contradictory things:
“Ukrainian Finance Minister Aleksandr Danilyuk told the IMF that Kiev is ready to settle with Moscow, but is also preparing to go to court. Earlier he said that it was a “political loan we were forced to take” and “our position is that we should not return the money.””
This looks like an admission Ukraine must pay the debt and a denial Ukraine must pay the debt at one and the same time. If “Kiev is ready to settle with Moscow” then that is obviously an admission Ukraine must pay the debt. If “our position is that we should not return the money” then that is clearly a statement that it is not liable to pay it.
Danilyuk’s contradictory statements show the difficult position Ukraine finds itself in. It has to deny it must pay the debt since were it to admit the debt should be paid it would automatically lose the court case in London. At the same time it has to say it is willing to negotiate with Moscow to pay the debt – which of course means admitting it has to pay the debt – in order to satisfy the IMF and keep its restructuring programme on track.
My guess is that the Ukrainians seriously underestimated how quickly the case would come to trial and are uncertain what to do. Some Ukrainian officials were reported to have said at the time the claim was issued last January that they expected the case to go on for at least 2 years. It seems they thought they could string out the case – as apparently happens often in Ukraine itself – apparently unaware that London’s High Court – of which the Commercial Court is part – always to decide cases quickly as part of its overriding duty to do justice.
The result is that the case has taken just a year to bring to trial. The highly unconventional defence Ukraine has made against the Russian claim made it all but inevitable that it would.
The future of Ukraine’s IMF now likely depends on the stance of the judges of Britain’s Commercial Courts. If they follow established precedents Ukraine will lose, in which case it is difficult to see how Ukraine’s IMF programme can continue and Ukraine’s IMF agreed debt restructuring programme will collapse. If Ukraine wins then in light of the unconventional defence Ukraine is making it will mean that for the first time in its history the Commercial Court is bringing politics into its decisions.