Russia announces lawsuit against Ukraine over default on $3 billion debt

AFP-JIJI

Russia’s finance ministry said Friday it was suing Ukraine for defaulting on a $3 billion debt to Moscow, following an order by President Vladimir Putin.

Kiev is “in a state of default” regarding its obligations toward Moscow and legal proceedings would ensue, the ministry said.

“Russia’s finance ministry … has initiated procedures required for an immediate lawsuit against Ukraine,” the statement said, adding that the lawsuit would be heard in a British court.

Ukraine announced last month it would not make the payment on its debt to Moscow after Putin vowed to sue Kiev if it failed to pay by the end of 2015.

The debt stems back to 2013 when Russia loaned $3 billion to the Kremlin-backed President Viktor Yanukovych, before pro-European protests that led to his downfall.

Ukrainian authorities say it is not a sovereign loan by one state to another but rather a transaction made via the financial markets that is subject to terms agreed with other creditors.

Kiev reached a restructuring deal in August with its private creditors, including major banks and investment funds, which agreed to reduce their claims by 20 percent.

Moscow however, maintains that the loan cannot be considered private debt and has refused such conditions.

The Russian government instead offered to spread out the payment over three years, an offer Kiev rejected.

“Ukraine preferred defaulting on its debt obligations to holding honest negotiations,” the finance ministry said, adding that the legal proceedings “do not preclude constructive dialogue to reach an acceptable settlement of the debt.”

The dispute has been hampering the International Monetary Fund’s $17.5-billion rescue plan for Ukraine, which restricts Kiev’s ability to restructure billions of dollars in debt.

The Ukrainian parliament last week adopted its 2016 budget with a deficit of 3.7 percent of GDP, a crucial step for unlocking much-needed aid from the IMF and Western countries.

The announcement of the lawsuit coincided with the coming into force of a Russian food embargo against Ukraine in protest at Kiev’s free-trade deal with the EU.

Furious at seeing its former Soviet satellite turning towards the West, Russia banned the import of Ukrainian food from Friday.

Ukrainian Prime Minister Arseniy Yatsenyuk has put the cost of Moscow’s measures to his country at some $600 million.

And President Petro Poroshenko admitted earlier this month that Russia’s retaliatory move would “damage” Ukraine’s economy but said he was “ready to pay the price” and press on with efforts to join a European Union free-trade zone.

He blasted the embargo in his New Year address, saying Moscow was trying to “economically strangle” Ukraine.

Tensions between the two countries continue to simmer despite a lull in fighting in the eastern part of Ukraine.

A peace deal signed in Minsk in April 2015 brought hostilities between Ukraine and pro-Russian rebels in the east to a halt after more than 9,000 people had been killed in a year of fighting.

However, sporadic outbreaks of violence continue and a Ukrainian soldier and two civilians were killed in fighting on Dec. 27 despite the truce.