Russia’s Putin threatens Ukraine with court over $3 billion debt

Russian President Vladimir Putin told his government to take Ukraine to court if it did not repay a $3 billion Eurobond while other Russian officials blasted the International Monetary Fund for softening its lending rules to help “crooks” in Kiev.

The Kremlin reacted sharply after the Washington-based Fund announced it was changing its lending rules to allow it to continue supporting countries if they fail to repay official creditors, a change that would help Ukraine if it misses payment on the Moscow-held Eurobond, falling due on Dec. 20.

As Prime Minister Dmitry Medvedev railed against the IMF for political meddling, Putin, who last month offered Kiev softer terms for repayment, told his ministers to take Ukraine to the court if settlement was not reached and Kiev failed to repay.

“Take them to court then,” Putin said at a meeting with the ministers.

The IMF’s change in rules embroiled the lender deeper in the nearly two-year conflict between the two neighbors, with the Eurobond becoming its focal economic point.

The two-year Eurobond was taken out by the government of Moscow-backed ex-president Viktor Yanukovich just two months before he fled to Russia in February 2014 in the face of street protests over his policy swerve away from deeper integration into the European mainstream.

Finance Minister Anton Siluanov said Ukraine had 10 days after the Eurobond falls due on Dec. 20 to either repay the $3 billion or accept Putin’s restructuring proposal for the debt to be paid back in $1 billion installments, backed by Western guarantees, over three years.

Medvedev accused the IMF of meddling and said the Fund’s decision had no legal basis but had been taken for political reasons. He said he doubted Ukraine would redeem the note.

“I have the sense that they won’t pay it back because they are crooks,” Medvedev said in an interview on state television. “And our Western partners not only don’t help but also interfere.”

Ukrainian Finance Minister Natalia Yaresko lauded the IMF’s decision “historic”.

“It allows us to understand that if we are included in this policy and we unfortunately are not able to restructure the so-called Russian Eurobond, then the doors to IMF loan financing will not be closed to us,” she told journalists.

Kremlin spokesman Dmitry Peskov said the IMF had created a dangerous precedent.

“The precedent for us is absolutely not acceptable, and the main thing is that it is quite dangerous because we have created a dangerous precedent for permitting the non-payment of sovereign debts. The question is: what will happen after that?” Peskov told reporters.

Ukraine, which has separately reached an agreement with private creditors to restructure its sovereign and sovereign-guaranteed debt to plug a $15 billion funding gap under an IMF-led $40 billion bailout program, insists the debt owed to Moscow is commercial.

Russia, which Western governments say continues to support separatist rebels in Ukraine’s east, says it is country-to-country official debt outside the scope of Kiev’s deal with private creditors.

Ukraine says it cannot legally offer Russia a better deal than the terms agreed with its other creditors, but it also cannot spare the $3 billion from its budget.

Its war-torn economy is expected to shrink 12 percent this year with a budget deficit of 4.1 percent of gross domestic product, while foreign currency reserves are at $13 billion, barely enough to cover three months of imports and way below an IMF target.

Moscow initially wanted repayment of the Eurobond in full and on time this month, but then Putin unexpectedly made his offer of softer terms.

Ukraine has not responded to the offer and Medvedev said on Wednesday that European and American partners had not come forward with guarantees.

“That means that nobody believes in (Ukraine’s) solvency. They washed their hands and said – let it pay on its own.”

“We will not put up with this. We will go to court,” Medvedev said. “We will seek a default on the loan. We will fight for a default on all Ukraine loans.”

Russia will have to file any claims in a London court as the Eurobond was drafted under British law.

Ukrainian Prime Minister Arseny Yatseniuk repeated that Russia could join the restructuring deal which Kiev had reached with its other creditors.

“Our restructuring plan remains on the table. Russia cannot and will not receive different restructuring terms from those that other creditors have received,” he said.

“If Russia takes Ukraine to court, then we are ready to pursue the matter in court with Russia. We are well-armed for a fight,” he added.