The debt deal Ukraine has painstakingly negotiated with its creditors is welcome and preferable to the alternative: a default that would have put additional pressure on the country’s shaky banks and led to both capital flight and a protracted battle in the courts. But amid all the backslapping a bit of perspective is needed.
Greece has severe problems but Ukraine is the most troubled country in Europe. It has inflation at 55%, its economy is expected to contract by 10% this year, and the government is fighting a war with separatists in the east backed by Russia that is costly in both human and financial terms.
The deal involves a 20% writedown to the face value of $18bn of eurobonds and pushes back the date on which the bonds will be redeemed by four years. Ukraine has some breathing space and the accord means it will continue to be eligible for financial help from the International Monetary Fund. That’s the good news.
But the finance minister, Natalia Yaresko, had to scale back her ambitions once it became clear creditors thought Kiev’s threat to default was a bluff. She has had to offer higher interest rates when debt payments resume and has had to accept a 20% writedown rather than the 40% she wanted.
Ukraine’s debts remain high and its economy is in freefall. This agreement is a stop gap not a game changer.
