Einvaded by Russia on February 24, 2022, Ukraine is trying to manage, at the same time as the war on the front, an economy damaged by bombings, the systematic destruction of its energy infrastructure and a massive labor shortage. work due to military mobilization and the exodus of part of the population. Another ordeal is added to this list of challenges: the renegotiation of its sovereign debt with its private creditors.
The day after the invasion, these asset managers, including the American giants BlackRock and Pimco and the French Amundi, a subsidiary of Crédit Agricole and the leading fund in Europe, had granted Kiev a two-year moratorium on the reimbursement of assets. ‘around 20 billion dollars (18.7 billion euros) of government bonds. This moratorium expires on 1er August, when the conflict, which the financiers had perhaps envisaged as a short-term confrontation, turns into a war of attrition whose outcome no one can currently predict.
Faced with a Russian army supported by an economy completely refocused by the Kremlin on the war effort, Ukraine today devotes around 40 billion dollars per year to its military spending, or 22% of its gross domestic product. Restructuring its debt is therefore, in this context, a priority. It is also one of the conditions set by the International Monetary Fund (IMF) to continue the payment of its aid of 15.6 billion dollars.
The ongoing negotiations on new deadlines are stumbling over the amount of the restructuring. A committee representing private creditors has just rejected Ukraine’s proposal, which had received the green light from the G7, for a 60% reduction on the value of their securities. Creditors have limited their offer to 20%.
This offer is insufficient. Asset managers certainly find themselves in the unprecedented and uncomfortable situation of negotiating a debt restructuring with a country where war is raging. But the amounts involved are not insurmountable for such financial institutions. They are not prohibited from taking into account the geopolitical factor of this war, which also threatens the security of Western countries, nor the attractiveness that the reconstruction of the country will present for investors, once the war is over.
Monumental sums
This war, which it did not provoke, is costing Ukraine monumental sums to ensure its defense against the Russian aggressor. Western states, which support it in this effort, have granted it significant military and financial aid for two years, without which it would have collapsed. kyiv, however, observes with concern the political uncertainty which reigns among several of its allies, in the United States and in Europe, and fears the electoral deadlines: nothing says that the governments produced by possible alternations, in particular in Washington but also in France, will also be favorable to him.
To protect its back, the Ukrainian government wants to be able to call on the financial markets, but it will only be able to borrow on these markets if its debt is restructured. In supporting Ukraine, states have laboriously done their part. It is now up to private creditors to take responsibility for theirs, by formulating more generous restructuring proposals.