Cabinet requests Parliament to allow imposing moratorium on external debt repayments

UKRAINE - In Brief 19 May 2015 by Dmytro Boyarchuk

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The Cabinet intends to submit to the parliament a draft law which should allow the Cabinet to impose moratorium on external debt repayments, media reported today. This move followed a series of messages from Finance Minister Natalie Jaresko about complicated process of negotiations. Does it mean that the authorities are going to announce default? We do not believe in such scenario. The problem is that authorities do not have enough arguments why creditors should agree on haircut. At the same time insiders report that the IMF made it clear that restructuring is critical for next wire (allegedly this requirement was written between the lines). Against this backdrop the authorities are increasing pressure in all possible channels. Still, in our view, default will be much more damaging for the country than delay with $1.67 billion of IMF payment Ukraine anticipates in June. Firstly, the very news about default might trigger new wave of currency panic inside Ukraine let alone new wave of bank-run. Secondly, default on Russian $3 billion will raise questions on further support from the IMF (since some see the $3 billion as debt to Russian authorities). Finally, defaulting in such a rough manner, when situation has finally stabilized at the country, might ruin very fragile results the authorities have achieved with such heavy efforts. All in all, despite very loud name of the draft law we see this move as bluffing which intends to make creditors accept Minfin restructuring proposal.