It’s time to cancel Ukraine’s foreign debt

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While shelling and shelling ravaged Ukrainian cities during the first week of the invasion, the Ukrainian government still made a scheduled interest payment to its private lenders on time. Lenders – mainly international financial institutions, banks and hedge funds – are all lining up to collect their debts, with no signs of letting up.

The people of Ukraine are struggling for survival while facing enormous humanitarian needs, massive displacement and horrific siege conditions in Mariupol. And yet they see urgently needed resources flowing out of the country to foreign creditors.

Ukraine’s total external public debt is $54 billion. The country is expected to pay off $7.3 billion in debt this year alone. More than half is owed to private lenders such as banks and hedge funds, while most of the rest is owed to multilateral institutions such as the International Monetary Fund (IMF), World Bank and European Bank of India. ‘investment. The current decline in the value of the Ukrainian hryvnia against the US dollar will only exacerbate the debt burden, as external debts are owed in dollars, which puts additional pressure on the government to find the funds needed to repay its loans at a time of foreign invasion and extreme economic disruption.

Since the invasion, Ukrainian dollar-denominated bonds, which were issued as part of its debt restructuring in 2015, have been trading at around 25 cents on the dollar. This reflects the high risk of default, but also means that if Ukraine continues to pay down its debt, Western banks and hedge funds could make 300% profits.

The response of the multilateral institutions was to grant even more loans to Ukraine. Since the start of the war, the IMF has provided an emergency loan of £1.4 billion, while the World Bank has provided a financial package of $723 million including $589 million in loans. These new loans come on top of Ukraine’s already unsustainable debt.

Ukraine should never have been forced to take on these debts in the first place. Following the annexation of Crimea by Russia and the military conflict in Donbass in 2014, Ukraine faced an economic and financial crisis and was forced to take more foreign loans from international institutions . IMF loans came with strings attached, prompting Ukraine to agree to punitive conditions such as cuts in public spending, privatization and market liberalization. This prescription for failed policies is familiar to many low-income countries in the South, where the IMF has imposed similar conditions on loans for decades, causing lasting damage to their economies.

Civil society groups demand a response to Ukraine’s debt crisis commensurate with the scale of the devastation unleashed, which includes debt cancellation to release funds for humanitarian aid and medical supplies as well as for future reconstruction. They warn of the role that IMF loans have played in restructuring their economy and cutting essential public services. This program is detrimental at the best of times, let alone during military conflict and instability.

Calling for debt cancellation in response to an invasion, disaster or crisis should not be controversial – it should be an automatic global response. The global movement for debt justice calls for a process of automatic debt relief to ensure that relentless debt repayments do not prevent governments from responding to humanitarian disasters and severe external shocks.

Multilateral institutions and governments should adhere to a global program to automatically suspend debt payments in the event of invasions, pandemics, and natural and climatic disasters. Following debt suspension, an independent assessment should be conducted to identify the level of debt restructuring and cancellation required by all creditors. Instead of fighting for suspension and cancellation of debt on a case-by-case basis, an automatic debt relief mechanism would be the fastest way to provide immediate relief.

Financial support for Ukraine should include both debt relief and grants, so that Ukraine does not have to service its current debt while accepting even more loans on more detrimental. The UK government should use its influence to push the IMF and World Bank to cancel Ukraine’s debt to free up funds for immediate relief and for future reconstruction.

As the Ukrainian people struggle for their survival as a country, debt cancellation is a crucial act of solidarity – and one that can and must be done immediately.


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