Ukraine’s parliament on Thursday approved an $18bn debt restructuring deal despite fears that a populist backlash against the proposals would jeopardise the vote, in turn plunging the war-torn and recession-battered country into an imminent default and deep political crisis.
A comfortable majority of MPs supported a package of measures sanctioning the debt deal, including a 20 per cent “haircut” or writedown for creditors.
A failed vote would have derailed the country’s $40bn international bailout package led by the International Monetary Fund just as the conflict between Russian-backed separatists and government forces in the east of the country appeared to be easing.
But there remained concern about a $3bn payment due to be made to Russia before the end of the year. Moscow refused to accept the terms of the debt restructuring and did not take part in months of tough negotiations between Ukraine’s government and creditors, led by US asset manager Franklin Templeton.
Arseniy Yatsenyuk, Ukraine’s prime minister, insisted ahead of the vote on Thursday that “there will be no better conditions for Russia”.
Mr Yatsenyuk stressed that a vote in favour of the proposed restructuring would allow the government to continue economic reforms in Ukraine while also raising pensions and salaries for millions of cash-strapped citizens by 13-19 per cent, helping to dilute the effects of spiralling inflation and a second year of a deep economic recession.
The prime minister had warned ahead of the vote that a failure to pass the debt restructuring proposal would cut Ukraine off from international creditors and plunge the country into “de facto default” and “financial collapse”.
Many MPs had wavered in their support ahead of the vote testing the cohesion of an increasingly fragile pro-western ruling coalition. Critics of the proposal worried that part of the deal linked repayment to economic growth which could significantly increase the country’s debt burden in the long term.
But in the end more than 300 votes were cast in favour of the deal, well above the 226 minimum required to pass the legislation. A majority of lawmakers in seven of eight parties in parliament supported the deal and one small party largely abstained. More than a third of some 48 independent lawmakers also backed the offer.
Volodymyr Hroysmann, speaker of parliament, cheered out after MPs backed the proposal.
“This is a victory for Ukraine,” said Mr Hroysmann.
Investors who own Ukraine’s debt had been unmoved by the threat of a parliamentary defeat. Prices for the next bond due to mature, a $500m security due to be repaid on 23 September were already at 78.8 cents in the dollar on Thursday, the highest level they have been all year.
Prices for one of the largest bonds Ukraine is due to repay, a $2.6bn 2017 bond, also hit a year to date high on Thursday of 76.5 cents in the dollar. Ukraine has remained locked out of international bond markets as its endures politicial and economic difficulty and prices for the country’s debt plunged as low as 44 cents in the dollar earlier this year as fears grew that Kiev would fail to reach a deal with its private sector creditors to reduce debt costs and would default on its obligations.
The hryvnia dipped 2 per cent against the dollar on Thursday, although this is in line with most emerging market currencies as investors wait for the outcome of the US Federal Reserve interest rate decision.