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IMF: Ukraine cannot use reserves to pay bondholders

13 june 2015, 12:47

 IMF chief Christine Lagarde said Friday that Ukraine cannot use its central bank reserves to pay creditors, rebuffing a suggestion by bondholders that it do so, AFP reports.

The reserves of the National Bank of Ukraine "cannot be used for sovereign debt service without the government incurring new debt," which runs against the aims of the IMF bailout program for the troubled country, Lagarde said.

Lagarde insisted that the country's private creditors need to move ahead with negotiations on cutting the country's debt burden, as envisaged in the $40 billion bailout program set in March.

Of that, $17.5 billion is in loans from the International Monetary Fund, and $15 billion is envisaged to come from a bond restructuring, which Kiev says means writing off some of the value of its debt.

"Ultimately, Ukraine&rsquos debt repayment capacity is limited by its fiscal capacity," Lagarde said.

"Rapid completion of the debt operation with high participation is vital for the success of the program, since Ukraine lacks the resources under the program to fully service its debts on the original terms."

Lagarde also said that the IMF did not have to cut off its funding of the Ukraine government if it stops servicing its private debt.

On Friday Prime Minister Arseniy Yatsenyuk, who met Lagarde earlier this week, said the country will freeze debt payments if there is no deal with private creditors because it has to fund its escalating campaign against pro-Russian fighters.

Making reference to the government's fight with rebels, Lagarde strongly endorsed its efforts and called for more support for Kiev.

"I believe that their program warrants the support of the international community, including the private sector, which is indispensable for the success of this program."

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