Putin, who has annexed Crimea and is widely accused of stoking a separatist revolt in eastern Ukraine, is seeking to maximize economic leverage to prevent pro-Western President Petro Poroshenko fulfilling a far reaching free trade agreement with the European Union.
Under Russian pressure, the EU and Ukraine agreed this month to postpone implementation of the accord until the end of 2015 after Kiev accepted a ceasefire with the pro-Russian rebels in a conflict that has killed more than 3,000 people.
At the heart of the bond issue is an unusual clause in the covenant which stipulates “total state debt and state-guaranteed debt should not at any time exceed an amount equal to 60 percent of the annual nominal gross domestic product (GDP) of Ukraine”.
As Ukraine’s economy has shrunk and its currency has fallen, that level may already have been breached – Commerzbank analysts reckon the current hryvnia exchange rate around 13 per dollar UAH= is the trigger point. If not, debt-to-GDP will top 67 percent by end-2014, the International Monetary Fund predicts.
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