Ukraine has imposed a moratorium on the $3 billion Russian debt repayment, said the country’s Prime Minister Arseny Yatsenyuk at a cabinet meeting on Friday. The announcement comes ahead of the December 20 deadline for the debt redemption.
"Considering that Russia has refused, despite our efforts, to sign an agreement on restructuring and to accept our proposals, the cabinet is imposing a moratorium on payment of the Russian debt worth $3 billion," said Yatsenyuk.
The payment is halted "until we make restructuring proposals or a relevant court decision is made," added the Prime Minister.
Kiev's moratorium on debt repayment to Russia constitutes default, according to the chairman of the Federation Council International Affairs Committee Konstantin Kosachev.
"According to IMF rules, a moratorium by the Ukrainian government on the $3 billion debt repayment to Russia is in fact a declaration of Ukraine's default,” said Kosachev.
On Wednesday, The International Monetary Fund (IMF) recognized Ukraine's debt to Russia as official and sovereign. The sovereign status of the debt means Ukraine would have to declare default if unable to pay.
However, on Tuesday the IMF changed its strict policy prohibiting the fund from lending “to countries that are not making a good-faith effort to eliminate their arrears with creditors.”
The decision was criticized by Moscow, as it will apparently allow the IMF to continue doing business as usual with Kiev even if it fails to pay its sovereign debt to Russia.
READ MORE: IMF recognizes Ukraine’s contested $3bn debt to Russia as sovereign
According to Yatsenyuk, Ukraine has also halted debt repayments by state-owned companies to Russian banks.
“The government is imposing a moratorium on the $507 million debt payment to Russian banks of two Ukrainian companies Yuzhnoe and Ukravtodor. From today all payments are suspended till our [government – Ed.] or a court makes a decision,” Yatsenyuk said.
Late on Thursday, Ukraine's Ministry of Finance said Kiev couldn’t pay off Russia’s $3 billion Eurobond loan without breaking a debt restructuring deal reached with other international creditors.
The country “remains committed to negotiating in good faith” with Moscow over debt restructuring, said the ministry in a statement.
In August, Ukraine agreed a restructuring deal with a creditor committee led by Franklin Templeton (which owns about $7 billion of Ukrainian bonds) providing a 20 percent write-down on about $18 billion worth of Eurobonds.
Russia refused to participate in the debt restructuring, claiming its bond purchase was a state loan not a commercial one.
In November, Russian President Vladimir Putin offered a three-year restructuring plan for Kiev’s debt, provided loan guarantees were in place from the US, the EU and the International Monetary Fund. Under the offer, Russia would forgo payment this year and Kiev would pay $1 billion a year for the next three years.
The deal fell through after Ukraine's Western backers were unwilling to provide such guarantees.
Last week, President Putin ordered the Finance Ministry to file a lawsuit against Ukraine if Kiev fails to repay Russia's $3 billion Eurobond loan within a 10-day grace period after the December 20 deadline.
Ukraine’s sovereign debt to Russia dates back to a deal between President Putin and former Ukrainian President Viktor Yanukovich struck in 2013 which envisaged Moscow buying $15 billion worth of Ukrainian bonds. Russia bought $3 billion worth in December 20, 2013, and the debt was supposed to be redeemed on December 20, 2015.