US Senator suggests precedent for poor countries to walk away from IMF Debt by saying Ukraine should walk away from Russia debt

RT
Fri, 25 Sep 2015 15:17 UTC

© Gleb Garanich / Reuters

U.S. Senator Chris Murphy (R) makes a speech to pro-European integration protesters as Senator John McCain (C) and Ukrainian opposition leader Vitaly Klitschko (L) look on during a mass rally at Independence Square in Kiev December 15, 2013

The US and other countries should do everything to grant Ukraine the legal right to shrug off its $3 billion Russian debt due in December, said US Senator Chris Murphy of the Foreign Relations Committee in an interview with the Sputnik news agency.

"The international community should make it clear that we should take whatever steps necessary to give Ukraine the legal cover it needs to walk away from that debt...I don't think Ukraine should be obligated to pay Russia back a dime," said the Connecticut senator to the agency on Thursday.

The US has been "treating Russia with kid gloves on this question of the debt that Ukraine owes it," Murphy added.

On September 30, the Senate committee will meet IMF chief Christine Lagarde to discuss Kiev's debt.

In late August, a creditor committee led by Franklin Templeton (which owns about $7 billion of Ukrainian bonds) agreed a 20 percent write-off of some $18 billion worth of Eurobonds. Repayment of the remaining amount will be transferred from 2015-2023 to 2019-2027.

Russia has refused to accept Ukraine's haircut, saying it takes no part in "the so-called debt operation" and recommended that Kiev pay in full and on time to avoid "both litigation costs and penalty interest for overdue payments."

Ukraine's government on Tuesday started restructuring public debt and suspended payments from September 23 on a number of liabilities that will be restructured. The restructuring, in particular, applies to the Russian $3 billion Eurobonds. However, the debt to Moscow was not included in the list of non-payments.

In March, the IMF approved a $17.5 billion loan to Ukraine as part of a four-year bailout plan in exchange for austerity measures. The lack of an agreement with Russia thwarts unlocking the funds.

Comment: All things being equal, maybe Russia should default on its foreign debt? As Pepe Escobar recently wrote:

Imagine Russia defaulting on all its foreign debt - over $700 billion - on which Western sanctions have raised extra, punitive costs in terms of repayment.

The default would be payback for the twin Western manipulation of oil prices and the ruble. ...

Currently the only products that the West needs from Russia are oil and natural gas. A possible Russian default on its debt would have no effect on that demand in the short-term; and most probably in the long-term as well, unless it would contribute to a new financial crisis in the West, something that nearly happened in 1998.

We all remember August 1998, when a Russian default shook the entire Western financial system to the core. If a Russian default is now the object of serious consideration by the highest powers that be - and that includes, of course, the FSB, SVR, GRU - then the specter of The Mother of All Financial Crisis in the West is back. And for the EU, that would be fatal.