Default or not default

UKRAINE - In Brief 22 May 2015 by Dmytro Boyarchuk

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After parliament approved the law, which allows the Cabinet to impose a moratorium on debt repayment, an active discussion started on potential moves of the Cabinet. In essence, all observers agree that this law was just to add pressure on creditors; however, there is no consensus on what the Cabinet will do if creditors do not accept a haircut. Our opinion on this remains unchanged – Finance Minister Natalie Jaresko is playing a game “we have done everything we could” so as not to be blamed for poor efforts from the IMF. At the same time Ukrainian authorities are not independent in deciding whether to default or not to default. After all, the task they received from the IMF is to achieve a restructuring deal but not to destabilize the situation totally. In this context, for sure everyone is showing a poker face (Minfin and the IMF), trying to show they are really serious; however, we believe the Cabinet is hopeful the IMF will give up if creditors are not scared by the law on moratorium. And we do not believe the Cabinet will announce default before the IMF comes to some conclusion. What happens if the IMF indeed says to the Cabinet “go say you are bankrupt”? In this scenario we see the situation becoming even more complicated for all players. The Russians have already promised to go to arbitration court, and other creditors will do the same. For sure, the Ukrainian authorities do not have many assets outside the country; however, entering into ‘creditors’ besiege’ for a country striving for Euro integration creates a very controversial scenario.