The US has opened the door to increasing its financial assistance for Ukraine, on the eve of a vote in the Kiev parliament over an $18bn debt restructuring that has drawn criticism from some creditors and opposition politicians.
The debt deal secured in August after months of negotiations and scheduled to be voted on on Thursday is a crucial component of a four-year $40bn plan to fill the financing gaps in Ukraine brought on by the economic collapse that has accompanied the conflict in the country’s east.
But Ukraine’s government, facing growing opposition at home, has for months insisted that it needs additional help from the international community, as it battles Russian-backed rebels in its eastern provinces and tries to push through tough economic reforms mandated by the IMF.
The US contribution so far has come in the form of two $1bn loan guarantees this year. In recent weeks Washington has begun to hint it would be open to a third that would come as part of a broader package of additional financing from Europe and other sources.
Jack Lew, Treasury secretary, mentioned the possibility of a third loan guarantee to reporters on the sidelines of a G20 meeting this month, although he cautioned: “That’s a little bit over the horizon.”
“There is the prospect for additional financing from the United States and from other sources as well,” a senior US Treasury official told the Financial Times. “For Ukraine to be successful in this environment it will require support from the United States, from Europe, from other bilateral and multilateral sources.”
Mr Lew and his deputies at the US Treasury have taken an intense interest in Ukraine over the past year and invested heavily in the current government and particularly Natalie Jaresko, the finance minister who until recently called Chicago home.
This year alone Mr Lew and other senior Treasury officials have logged 30 calls or face-to-face meetings with Ms Jaresko and other top leaders in Kiev, according to Treasury records. Even amid concerns over China, a slowing global economy and recent market turmoil, Mr Lew reserved his lone dinner slot at a recent G20 finance ministers meeting in Turkey to huddle with Ms Jaresko at a seafood restaurant in what aides cite as a sign of the importance he attaches to the issue.
Ukraine “is definitely in the highest priority bin”, said Nathan Sheets, who as undersecretary for international affairs is Mr Lew’s chief deputy on matters outside the US.
Mr Sheets said the debt restructuring was the best Ukraine could have hoped for and an important element of restoring growth to its economy, which the IMF now expects to contract by 9 per cent this year. “When you come back from a negotiation it’s always easy to say oh, you could have got more. But my sense is that a deal is very much in the best interests of Ukraine and at the same time is fair to Ukraine’s creditors,” Mr Sheets said.
But this week’s vote in Kiev on the debt deal comes as the government is facing increasingly rowdy opposition from parliament, where on Tuesday it was struggling to muster enough votes to pass even uncontested legislation.
While the government remains confident it can secure parliament’s support for the debt deal, insiders say it may have to offer sweeteners such as boosts to pensions and public sector wages, either of which is likely to be unpopular at the IMF.
Robert Kahn, a senior fellow at the Council on Foreign Relations in Washington, said the Ukrainian economy still faced enormous challenges and there was a growing consensus that the international community would soon have to do more.
One more $1bn loan guarantee from the US “would be constructive”, he said. “But it is not enough.”