Europe

Ukraine crisis: Creditors to 'write off' 20% of debt

A man waits to receive his pension paid in Russian rouble notes in the eastern Ukrainian city of Donetsk on 1 April 2015. Image copyright Getty Images
Image caption A man waits to receive his pension. The conflict in Ukraine's east has closed businesses across the industrial heartland, ramping up unemployment and crippling its financial sector

The Ukrainian government says it has reached a debt restructuring deal with its creditors including a write-off of up to $3.8bn (£2.5bn; €3.4bn).

Finance Minister Natalia Yaresko said Ukraine's sovereign debt, estimated at $19bn, would be cut by 20% and the repayment period extended.

Ukraine's economic woes have spiralled since conflict erupted with pro-Russia rebels in the east in April 2014.

Hopes have risen of a peace deal amid continued fighting this week.

The Organization for Security and Cooperation in Europe (OSCE) said on Wednesday that both the government in Kiev and the separatists had agreed to end shelling and aim for a full ceasefire from 1 September.

However, the Ukrainian military said on Thursday there had been a "significant escalation" in fighting in the past 24 hours and seven soldiers had been killed.

'Win-win'

The debt restructuring deal announced on Thursday comes after five months of negotiations to save the conflict-hit country from default.

Foreign creditors, including private investors, had come under pressure from the US and the International Monetary Fund to accept short-term losses so that Ukraine would not be forced into resuming its reliance on Russia.

Image copyright AFP
Image caption Commentators say the deal is a victory for Finance Minister Natalie Yaresko, a US-born finance expert

As well as the 20% "haircut" for creditors, the deal will also extend the payment period on government bonds by four years, according to the finance ministry.

Ms Yaresko described it as a "win-win situation".

Prime Minister Arseniy Yatseniuk said it was a blow to "enemy" Russia.

"The default that our enemy was awaiting did not happen," he tweeted (in Ukrainian).

The deal for Ukraine comes amid calls for Greece to have its burgeoning debt restructured. Greece's private lenders took a massive 50% haircut on what they were owed, reducing Greek debt by €100bn.

Fresh hopes

IMF chief Christine Lagarde welcomed the deal for Ukraine on Thursday, saying it would "help restore debt sustainability".

However UK-based economic forecaster Capital Economics said the agreement was too small to make much of a dent in Ukraine's debt problem, and that what the country really needed was to get the economy going.

The conflict in Ukraine's east has closed businesses across the industrial heartland, ramping up unemployment and crippling its financial sector.

In Moscow, Russian Finance Minister Anton Siluanov said Russia would not participate in the Ukraine restructuring deal. Ukraine owes Russia $3bn, due for full repayment in December.

Meanwhile, US President Barack Obama stressed on Wednesday the importance of Russia implementing its obligations under the Minsk ceasefire deal.

The Minsk ceasefire deal, brokered in the Belarus capital in February, calls for both sides to remove heavy weapons from the frontline, and the withdrawal of all foreign armed groups.

Image copyright EPA
Image caption Shelling has continued despite the ceasefire in eastern Ukraine

After talks in Minsk on Wednesday, OSCE representative Martin Sajdik said there were fresh hopes that the peace deal would be implemented in full from 1 September.

Reuters quoted rebel leader Vladislav Deinego saying that all sides had the "intention" of complying.

Conflict broke out in Ukraine in April 2014 after Russia annexed Crimea in response to a pro-Moscow president being toppled by street protests in Kiev.

Almost 7,000 people have died and more than 17,000 have been wounded since the fighting began, according to UN officials.

Ukraine and the West say Russia supplies the rebels with sophisticated heavy weapons and regular troops. Moscow has denied the allegations.

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