Greece is a deadbeat nation, Puerto Rico is a party that lives beyond its means, but last year war-torn Ukraine made more interest payments to its lenders than it spent trying to defend itself against Russia.
I just returned from a trip to Ukraine and learned that Ukraine was forced to make a $75 million bond payment to Russia, the perpetrator behind the occupation of 9 per cent of Ukraine, deaths of 6,200, wounding of 30,000 and displacement of 1.3 million Ukrainians.
Ukraine is not another Greece or Puerto Rico. This is an occupied country crippled by a war with a ruthless neighbor that has been slowly taking over the country's economy and institutions since Ukraine left the Soviet fold in 1991.
The $75 million payment was necessary because Russia could have put Ukraine into default, triggering an unholy mess among lenders. This week, another $125 million payment due to Russia was missed and Ukraine's gas supplies were cut off.
Ukraine's extenuating circumstances - the struggle against Russian-perpetrated corruption at home and Russian aggression along its eastern border - warrants a shift in the IMF's debt restructuring posture.
The IMF has agreed to a $17.5 billion bailout (and advanced $5 billion) to Ukraine, but is insisting that international investors owed twice that amount should agree to take a haircut. The holdouts include Russia (owed $3 billion) and the Franklin Templeton Fund (owed $7.8 billion). Russia's stance is predictable but the Fund has already marked these bonds to market, and therefore taken the hit. Its bet in the first place seems inappropriate and its intransigence now is unfair given Ukraine's circumstances.
The IMF must advance funds to Ukraine and tell the other lenders to back off.
"We have offered warrants based on GDP growth as an upside, but in return for a major haircut," explained Ukraine's Minister of finance Natalie Jaresco in an interview in Kiev. She is an American who joined the Ukrainian government this year to help the country reform. "Interest payments are 5 percent of GDP, the same as our budget for national defense and law enforcement, at a time when we are fighting a war."
Miraculously, Ukrainians are resilient and determined to remain independent, join Europe and pay their bills. This is why the IMF should declare a moratorium, and finance Ukraine, until Russian forces and operatives have withdrawn from the country. Besides that, their loans are worth very little. Ukraine's Russian-occupied territories represented 15 percent of its GDP, 25 percent of its export income and inflation is 60 percent.
"We are faced with the illegal annexation of one territory and the illegal occupation of another with huge human costs," said Minister Jaresco. "And 15 to 20 percent of the GDP has been taken off line."
Hopefully, there will be an upside for lender patience. The new government led by businessman Peter Poroshenko has virtually eliminated Ukraine's dependence on Russian natural gas by contracting supplies at fair prices from Norway, Germany and France.
The country's populace is rebuilding its army, gutted by the previous administrations and corruption. An "army" of grassroots volunteers has taken up arms, millions in donations are being raised to replace equipment that went missing and operations and corrupt practices are being addressed.
In an interview by email, Poroshenko wrote: "Firstly, it is very difficult, because anti-corruption bodies are poisoned by corruption. That's why we established the National Anti-Corruption Bureau. Secondly, it is hard to fight corruption, because Ukrainians got used to corruption and have a tolerant attitude towards corruption. The majority of people avoid bureaucratic rules, among which are a lot of unnecessary rules that facilitate bribes. We started to reduce the number of bureaucratic rules ... I have grounds to be content with the work of the public prosecution, but we'd like to see more results."
Ukraine's war and government shake-up has been the backdrop to debt talks but should be center stage next week in Washington. Another sizeable payment is due in July and the IMF must be tough with lenders.
They should be reminded that technically, under the Geneva Convention, Ukraine is an occupied country. Such a designation would result in the suspension of debt payments and would entitle the country to gigantic reparations from Russia.
Unfortunately, becoming an "occupied country" under the Geneva Convention requires approval by the United Nations where Russia enjoys a veto on the Security Council that, if exercised, would require General Assembly approval and take months.
All of these complications burden Ukraine and should not. The IMF is the key to getting Ukraine out from under Russia's stranglehold.
Ukrainians deserve no less. So does the world.
This article first appeared in National Post July 3