UKRAINE FINANCE MINISTRY: KYIV SECURES DEBT-RELIEF DEAL

Wall Street Journal on August 27, 2015, reported that Ukraine’s private creditors have accepted a 20% write-down on the face value of their Ukrainian bonds. Excerpts below:

Ukraine said August 27, 2015, that it had secured a debt-relief deal with its creditors, a vital step toward unlocking billions of dollars in emergency financing, after months of stalemate threatened to derail its international bailout.

The agreement, which requires approval by Ukraine’s parliament, is a major success for the pro-Western government as it seeks to push through a series of politically tough economic overhauls and nurse its fragile economy to health.

But the simmering conflict with Russian-backed separatists in the eastern part of the country continues to exact a toll on government finances, and the debt relief by no means assures economic viability for a country that has long been struggling to stay afloat.

Averting a financial tailspin in the country of 45 million people has been a priority in Washington and European capitals, which have sought to buttress the government in Kiev against an increasingly confrontational Russia.

U.S. Treasury Secretary Jacob Lew urged creditors to move swiftly to complete the restructuring, calling it critical to Ukraine’s future prosperity. “A strong, stable Ukraine is in the interests of Ukraine’s citizens, Ukraine’s neighbors, its international partners, and investors,” Mr. Lew said.

According to the Ukrainian Finance Ministry, private creditors including U.S. mutual fund Franklin Templeton Investments agreed to a 20% write-down in the face value of their Ukrainian bonds, and to push back maturities on government debt by four years.

The hryvnia currency rose more than 3% against the dollar, and Ukraine’s central bank lowered its key interest rate to 27% from 30%, citing reduced inflation risks just minutes after the deal was announced.

Ukraine’s bonds jumped by about 18%. The price of two-year notes increased to more than 66 cents, from 56 cents, according to data from Tradeweb, the highest level since January.

Under the bailout terms, Ukraine needed to secure $15 billion-worth of debt relief, including interest payments, from its international creditors, as well as pass the economic measures, to release the rest of the promised $25 billion in rescue money from the International Monetary Fund, Europe and the U.S.

IMF Managing Director Christine Lagarde welcomed the deal and said Ukraine should meet the debt targets outlined in the bailout program—but only if all the Eurobond holders participated.

The conflict [with Russia] has destroyed critical infrastructure, fueled a deep recession, pushed the currency into a nose-dive, depleted emergency cash reserves and forced acute budget belt-tightening.

Besides the IMF, Kiev has the backing of Washington, the European Union and other Western allies who see Ukraine as a decisive geopolitical battleground to fend off the advances of an increasingly aggressive Russia.

After months of impasse, negotiations appeared to accelerate in late July, with both sides offering to make concessions. Prospects of a resolution were given a boost last month when Ukraine met the deadline for a $120 million coupon payment on its two-year bonds.

The turning point, said Ms. Jaresko, came…at San Francisco’s Hyatt Regency hotel two weeks ago,…

After leaving San Francisco, the parties spent two more tense weeks thrashing out details.

The agreement is a welcome relief also for other holders of Ukraine debt, who have been following the negotiations from the sidelines. The measures will apply to all the country’s outstanding debt.

Also on August 27, 2015, Wall Street Journal reported that Ukraine’s US-born Finance Minister Natalie Jaresko is praised for her persistence. She was personally involved in securing the debt-relief deal. Excerpts below:

After announcing a deal to help stave off bankruptcy at a government meeting Thursday, Finance Minister Natalie Jaresko received an unusual gift from her fellow ministers: a painted artillery shell casing.

Ms. Jaresko, a 50-year-old American who but only recently became a Ukrainian citizen, was being hailed as the hero of the battle to save the economy, one being waged at the same time as the country fights pro-Russian separatists in its east.

The finance minister led months of tense negotiations with private creditors, clocking thousands of miles flying from Eastern Europe to the U.S. to persuade them to accept a 20% write-down on the face value of their bonds and later repayment. The deal should help Ukraine secure further bailout funds from the International Monetary Fund.

Ms. Jaresko, born into a Ukrainian diaspora family in Illinois, arrived in Kiev two decades ago as one of a handful of diplomats charged with opening the U.S. Embassy. She later moved into the private sector, eventually co-founding the Horizon Capital private-equity fund in 2006, which focused on the region.

It was only after a revolution last year swept Ukraine’s pro-Russian president out of power that Ms. Jaresko contemplated another stint in government.

In December, President Petro Poroshenko tapped her to run the Finance Ministry, a post with notorious bureaucracy, corruption and near-empty coffers—all for a salary equal to $300 a month.

Ms. Jaresko, who speaks Ukrainian, is no stranger to the difficulties of making the case for the country: Colleagues at Horizon Capital say she spent the first year at the fund in hundreds of meetings, traveling thousands of miles to follow up on the slightest flicker of investor interest in Ukrainian assets.

Comments: This is welcome news. This blog has long argued that securing Ukraine as a state is more important than supporting Greece, although financial stability is important in both cases. Ms. Jaresko has proven to be an effective Minister of Finance and the present deal could be a turning point for Ukraine. A financially strong Ukraine is a must when taking on Russia.

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