Ukraine is currently negotiating with its creditors to obtain some form of debt relief on $20 billion worth of its foreign bonds. In July 2022, Ukraine obtained a two-year freeze on payments of principal and interest on these bonds. This freeze expires August 1. Ukraine, according to reports, is asking for a 20% hair-cut on the bonds and the payments due on them—which would mean a 20% devaluation on the value of the bonds. But a private sector creditor’s committee is asking for harsher terms. A June 17 Reuter’s article, “Ukraine’s International Bond Rework Derailed as Deadline Nears,” warns that, should the negotiations fail, it would “raise the specter that the war-torn country might slip into default.”
In March, Black Rock, the world’s largest asset-management firm, and PIMCO, a bond investment fund, formed a foreign bondholders group, which collectively holds $25.2 billion out of Ukraine’s $108.4 billion foreign debt—nearly a quarter of that foreign debt—to press Ukraine to start paying interest on its debt again, perhaps as soon as next year. The bondholders want to take in as much as $500 million in annual interest payments after agreeing to some debt relief to Ukraine, reported the May 5 Wall Street. The bondholders group has also discussed demanding that Ukraine pay a higher interest rate on its debt. Ukraine’s Finance Minister Sergii Marchenko has criticized this policy.
However, there is an Alice-in-Wonderland presence permeating these negotiations. First, Ukraine has no ability to finance any payment on its foreign debt, without first receiving a foreign loan to pay it. This is a Ponzi scheme. The same applies domestically. Ukraine has projected a $44 billion budget deficit for 2024, or about $3.7 billion per month. That, too, is largely covered by the EU, U.S. and IMF-World Bank inflow of funds into Ukraine. Without that margin, Ukraine would collapse. There is no Ukrainian sovereign economy; it’s a fiction.
