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Russia suing Ukraine in London shows failure of global debt rules

Russia’s case against Ukraine for repayment of a $3 billion loan will begin in London on Tuesday 17 January.

Commenting ahead of the case, Sarah-Jayne Clifton, Director of the Jubilee Debt Campaign said:

“An urgent audit of Ukraine’s debt is needed to establish where the debts have come from, where the money has gone, and how much of it is from illegitimate or odious loans which should not be repaid at all. A fair resolution to Ukraine’s debt crisis would then involve all of Ukraine’s creditors taking part in a restructuring to get remaining debt payments down to a level consistent with meeting the basic needs of the Ukrainian population.

The Royal Courts of Justice, including the High Court, London. Photo: Dan Perry/Flickr

The Royal Courts of Justice, including the High Court, London. Photo: Dan Perry/Flickr

 

 

 

 

 

 

Sarah-Jayne Clifton continued:

“Russia should not be trying to dodge a debt restructuring process, but neither should other creditors such as the World Bank. From Argentina’s debt crisis to Greece and Mozambique and now Ukraine, it is clear the global system for dealing with debt crises is repeatedly failing. A fair and transparent international bankruptcy process for countries is the only way to break the rule of powerful creditors over countries in debt crisis.”

“The fact that this case between two States is being heard by the British High Court highlights the lack of a fair international system for resolving sovereign debt crises. Forty per cent of internationally-owed bonds are issued under English law, giving the British legal system significant power over the sovereign financial affairs of other states. Meanwhile the UK government has been actively blocking attempts to create a fair and transparent multilateral debt resolution process that is independent from lenders and borrowers.”

Ukraine defaulted on the loan in December 2015 after Russia refused to accept the 20% reduction in the size of the debt agreed with other Ukrainian bondholders. The case will be heard at the High Court in London as the bond was issued under English law.

 

In September 2015, the UN General Assembly voted to adopt new principles on debt restructuring, including that “Creditors have the right to receive the same proportionate treatment in accordance with their credit and its characteristics.” While both Russia and Ukraine voted in favour of these principles, the US and UK were two of just six countries which voted against them.

The original $3 billion loan from Russia was given to the government of Victor Yanukovych in 2012 at a time when Ukraine was considering signing a trade agreement with the EU. Yanukovych and his associates have faced corruption allegations since his removal from power in 2014. However, Russia is not the only creditor which is avoiding restructuring Ukraine’s debt. For example, the World Bank has not restructured any of the $5.6 billion it is owed.

Ukraine is currently only able to make debt payments because of being lent $17 billion by the IMF between November 2015 and October 2019, the same bailing out of other creditors by the IMF as happened in Greece’s debt crisis after 2010. Conditions of the IMF loans include closing 5% of schools, increasing energy prices by between 240% and 425%, an increase in court fees and privatisation of several state owned companies.

 


Countries

Russian Federation, Ukraine, United Kingdom
Jubilee Debt Campaign is a company limited by guarantee, number 3201959
Jubilee Debt Campaign's registered charity number is 1055675