REUTERS December 8, 2015

IMF rule change keeps Ukraine support; Russia complains

WASHINGTON (Reuters) – The International Monetary Fund will change its lending rules to allow it to keep supporting countries if they fail to repay official creditors, a move that would help Ukraine if it misses payments on a $3 billion debt to Russia.

Russia’s finance minister immediately criticized the decision.

“The IMF’s Executive Board met today and agreed to change the current policy on non-toleration of arrears to official creditors,” chief spokesman Gerry Rice said in a statement.

Ukraine is restructuring its debts to plug a $15 billion funding gap under an IMF-led $40 billion bailout. Defaulting on the Eurobond, which matures on Dec. 20, could have put the program at risk.

Russian Finance Minister Anton Siluanov said the decision looked rushed and biased.

“It’s taken exclusively to the detriment of Russia and in order to legalize Kiev not repaying its debts,” he told reporters in Moscow.

Russia refused to allow the Eurobond to be included in Ukraine’s recent debt restructuring, arguing that it was made as an “official sector” bilateral loan rather than being a standard bond.

IMF policy had been to tolerate arrears to private creditors, but not to sovereign states. A 2013 IMF paper said having different standards for official and private creditors could create a situation where one or more sovereign lender could effectively veto assistance to a country in need.

“What we should avoid is that a minority sovereign creditor might act like the hold-out creditor in the case of private assets,” IMF executive board member Otaviano Canuto said in an interview before the change was approved.

Canuto, who represents Brazil on the policymaking board, said conditions on IMF lending to a country that fell behind on payments would make sure it kept negotiating in good faith to reach agreement with creditors.

Gabriel Sterne, head of global macro at Oxford Economics in London, said the change was long overdue but the timing “smells of opportunism.”

“It’s another unfortunate example where the political convenience of western Europe erodes the credibility and coherence of the IMF’s crisis resolution policies,” he said.