Ukraine, under the threat of default, wars with private lenders

2024-07-03 09:46:45

Will Ukraine manage to escape default? You have just one month left to reach an agreement with your private lenders. We especially speak negotiation under the pressure of war.

In the wake of Russia’s anger, many funds, including the American Black Rock and the French Amundi, willingly accepted a moratorium on payments. Then they become friends of Ukraine, but they are businessmen, they need temporary income to satisfy their customers, who have entrusted their money to them. With a deadline of August 1, they want to pay back their taxes; What the bilateral creditors, that is to say the States, agreed to. In addition to the new moratorium, Kyiv is asking them to clean up 60% of this $20 billion slate. At most they will get rid of 20% of their debts.

Lack of Western aid?

Ukraine today is sure to receive special help from its friends. The 50 billion dollars promised in June by the G7, with the American loan of 60 billion finally voted by the Congress, gives a breather but this money has not yet been paid and will be directed to military spending. Ukraine therefore immediately has a serious problem in closing its budget. It is running out of money according to the IMF. Giving priority to creditors in this financial crisis is the sacrifice of the salaries of civil servants, or social or even military spending. It is impossible for President Zelensky. The public debt of Ukraine has increased by 50% since the beginning of the war, it will represent the equivalent of its GDP by the end of the year.

Pampered lenders in war.

Technically, not much will happen if Ukraine is forced into default because it has not financed itself on commodities since the beginning of the Russian aggression. But in terms of name it will have the worst effect. A country at war generally maintains its relationship with its creditors. It’s so rare that it’s lacking, notes scholar Patrick Shea analysis published by the communication. Russia did it in 2022 but it was a technical mistake, caused by Western sanctions. In the 1980s, Iraq, then at war with Iran, was also wrong. These two countries have abundant resources, oil, which assures creditors. This is not the case for Ukraine. On the contrary, it saw its economy shrink due to the destruction of its infrastructure targeted by the Russian army. Its GDP has lost a quarter of its value in two years. It is not very reassuring for lenders who have peaceful times depending on the growth prospects to lend money.

American taxpayers to the rescue?

Ukraine says it wants to reach a solution in the coming weeks. But to date no solution seems satisfactory. It is difficult to see Western countries paying for Ukraine; A politically indefensible option. But if Ukraine is wrong, this means that Ukraine’s allied states are passing on the cost of war to the private sector. Not really confident about their support ability.