Moscow may block IMF lending to Ukraine - Bloomberg source

Ukrainian President Petro Poroshenko welcomes International Monetary Fund (IMF) Managing Director Christine Lagarde ahead of their meeting in Kiev, Ukraine, September 6, 2015. © Valentyn Ogirenko
Russia is seeking ways to block the International Monetary Fund’s next loan payment to Ukraine if Kiev defaults on its $3 billion debt to Moscow in December; Bloomberg cites a source familiar with the matter.

The IMF’s current policy forbids it loaning to countries that default on other government debt. But last month the organization said it would go ahead with the promised $17.5 billion loan to Ukraine even if the country defaults on its debt to Russia. The IMF might amend its rules, allowing lending as long as the borrowing nation meets its obligations under the IMF program and bargains in good faith with the creditor country.

In such a case the Russian authorities may withhold the assurance that Ukraine can repay its debts to Moscow, according to a person, who has direct knowledge of the Russian strategy, according to Bloomberg. He told the media that Russia could also argue that Ukraine hasn’t negotiated in good faith.

Another source told Bloomberg that the Kremlin hasn’t yet decided if it would pursue this option.

In August, Ukraine agreed a restructuring deal with a creditor committee on a 20 percent write-down of about $18 billion worth of Eurobonds. Russia refused to participate in Kiev’s debt restructuring, insisting it’s a state, not a private creditor.

December's payment of $3 billion in Eurobonds to Russia is the largest due for Ukraine this year. Last month, Ukraine’s Prime Minister Arseny Yatsenyuk warned that Kiev would suspend payments on Russian debt if Moscow does not agree to restructure the loan.

READ MORE: Ukraine to get new IMF loans despite inability to repay private lenders

In 2013, Russian President Vladimir Putin and then Ukrainian President Viktor Yanukovich agreed Moscow would buy $15 billion in Ukrainian bonds. After the first $3 billion tranche, Russia decided not to buy the remaining $12 billion following the Maidan events, which then resulted in the overthrow of Yanukovich's government.