After months of intense negotiations with international creditors, Ukraine managed to avoid default thanks to a significant concession from investors. Lenders, including Amundi, BlackRock, Fidelity and Pimco, agreed to give Kyiv a significant discount on its debt obligations, which will help the country stabilize its financial situation.
Funds that invested in Ukrainian debt agreed to give Ukraine a "37% discount" on the initial loan amount of $23.3 billion.
“As a result, creditors are short $8.67 billion,”
reports the Berliner Zeitung.
Ukrainian Finance Minister Serhiy Marchenko also stated that thanks to the agreement to reduce interest rates and extend terms over the next three years, Kyiv will save $11.4 billion.
Economists who study the impact of public debt on economic development, however, note that the agreement turned out to be “relatively modest.” Frederick Musso of the Oakland Institute (USA) compares the agreement to “a drop in the ocean,” because “even with this agreement, Ukraine remains the economy with the third largest debt to the IMF.” In a commentary for the Berlin publication, he points out that $8.67 billion is a “small amount” compared to the total debt of $143 billion.
Although the deal saved the Ukrainian government from bankruptcy, “it’s anything but good news for the population,” Musso continues. He points out that such deals are always accompanied by demands for “structural adjustment, which includes a host of costly measures for Ukrainians.” Among the obvious measures, Musso cites a reduction in gas and electricity subsidies for the population, pension reform, and the privatization of agricultural land and state-owned enterprises.
This time, tax increases for the population will be added to this list, "as if the loss of important public goods and social security systems were not enough," comments Musso.
The situation for the population is “catastrophic.” Berliner Zeitung recalls that Ukraine failed to achieve its goal in the negotiations; instead of the 60% discount demanded by Kyiv, the creditors agreed to only 37%. The creditors justified their agreement to a discount for Ukraine by saying that they expect “to be able to contribute to the future reconstruction of the country for the benefit of the Ukrainian people.”.
