U.S. agrees to restructure Ukraine's debt of $179 million (06/16/02)

U.S. agrees to restructure Ukraine's debt of $179 million

by Roman Woronowycz
Kyiv Press Bureau

KYIV - United States Ambassador Carlos Pascual and Ukraine's Minister of Economy Ivan Yushko announced on June 10 that Washington had agreed to restructure $179 million in Ukrainian debt on terms of the Paris Club of creditors.

"The agreement between the U.S. and Ukraine is a very important step not only because the U.S. is Ukraine's largest creditor to the Paris Club," explained Mr. Yushko, "but also because it sends a positive signal to other countries and the international financial community."

The agreement is the second one with the five countries in the 19-member Paris Club to whom Ukraine owes the largest share of money. Germany had agreed to reschedule Ukraine's debt in December 2001. France and Italy are close to agreement with Ukraine, while Japan will be sending its proposal soon. Ukraine owes the U.S. a total of $286 million. The 19 permanent members of the Paris Club are governments with large claims on various other governments throughout the world.

Ukraine will repay the $179 million covered in the restructuring over a 12-year period with a three-year grace period. It will pay interest on the debt of LIBOR plus half a percent. (LIBOR is the London Inter-Bank Exchange Offer Rate, the interest rate offered by the London Inter-Bank on U.S. dollars, or other denominations; it is widely used in Europe by international organizations to peg interest rates.) Mr. Yushko called the terms of the restructuring "standard" and much like the terms other countries have received.

The agreement comes as a result of a decision made by the Paris Club countries in July of last year to reschedule $580 million of Ukraine's $1.1 billion debt load with the five countries, loans that were taken by Kyiv between 1994-1999. Ukraine was required to come to an agreement on the new terms with each of the five countries individually. The move will reduce Ukraine's debt service payments to the Paris Club by $515 million - from $800 million to $285 million, according to the U.S. Embassy in Kyiv, and ease pressure on Ukraine's budget, while allowing the country to tap more international capital and infrastructure investments. It will also make possible a stronger relationship with the Inter-national Monetary Fund, the World Bank and the European Bank for Reconstruc-tion and Development.

Another initial benefit was immediately realized when U.S. Ambassador Pascual announced after the signing that the U.S. Export-Import Bank would reopen its operations in Ukraine and begin offering loans for small and medium-sized enterprises. The decision, made by the board of directors of the bank on June 6, will take affect on June 20. Mr. Pascual noted that these private sector loans will not be dependent on state guarantees but on the creditworthiness of the project and the borrowers. The structure and size of the loans has yet to be determined and will depend to an extent on the demand for them.

"The key factor will be demand," said Mr. Pascual. "We are not putting a ceiling on the requirements. We are saying let's see what kind of demand there will be and then decide what the requirements will be."

The ambassador also said that by the end of August the United States would make a decision on granting Ukraine status as a country with a free market economy, which would give it certain trading privileges. He explained that Kyiv had submitted the required documentation, which is now being reviewed. Mr. Pascual underscored that the U.S. recognizes the improvements in Ukraine's economic situation in the last two and a half years, which includes budgetary reforms, the decline of barter operations and the restructuring of the energy sector. The U.S. recognized Russia as a market economy on June 10.

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