IMF logo
© Kim Kyung Hoon / Reuters
The International Monetary Fund will go ahead with the promised $17.5 billion loan to Ukraine even if Kiev defaults on its $3 billion debt to Russia due in December, reports The Wall Street Journal.

Current IMF policy forbids it loaning to countries that default on other governments. In 2013, Russian President Vladimir Putin and then Ukrainian President Viktor Yanukovich agreed Moscow would buy $15 billion in Ukrainian Eurobonds. After the first $3 billion, Russia decided not to buy the remaining $12 billion following the Maidan events, which resulted in the overthrow of Yanukovich's government.

Changing IMF's arrears policy would help "to avoid an outcome where Russia could hold the fund program hostage," Douglas Rediker, a fellow at the Peterson Institute for International Economics and former US representative on the IMF's board told the WSJ.

Comment: Which is exactly what Ukraine was hoping for. So rules are rules unless Russia is involved: Yatsenyuk threatens moratorium on $3bn debt to Russia - Ukraine bluffing?

The IMF appears to have wanted to amend its lending rules for a while. Anders Aslund, a senior fellow at the Atlantic Council, said the IMF initially wanted to ensure that China wouldn't be able to thwart IMF lending to member countries seeking bailouts as Beijing boosted loans in Africa and other countries.

The Ukrainian debt has become the catalyst.

Kiev has insisted that Moscow take a haircut on the loan like other creditors. The Kremlin has refused.

Last week, Ukrainian Prime Minister Arseny Yatsenyuk described the $3 billion loan as a Russian bribe to Yanukovich to stop the Association Agreement with the EU.

Russia's longstanding position is that Ukraine's debt should be classified as official intergovernmental.

"Ukraine's debt to Russia which is due to be redeemed in December of this year cannot be treated as a debt before private creditors, the debt has another status, it is official," said Russian Finance Minister Anton Siluanov repeating the Kremlin's position on Wednesday.