Greece, the IMF, and Ukraine

06/17/2015 03:04 pm ET | Updated Jun 17, 2016

Are you wondering why the IMF is standing by Ukraine against Ukraine's creditors, while the IMF is refusing to extend even a smidgeon of an olive branch to Greece?

Creditors have loaned Ukraine $70 billion dollars. To receive payment of $40 billion from the IMF, the IMF required Ukraine to convince its creditors to agree with a restructuring plan that would enable Ukraine to raise $15.3 billion out of the $70 billion it owes its creditors.

A committee of bond creditors came up with such a plan for settling with Ukraine. In response Ukraine:

(1) Passed a law in May 2015 saying the country could unilaterally declare a moratorium on debt repayment to creditors.

(2) Finance Minister Natalie Jaresko claimed that the current proposal from creditors would force the government to use $8 billion of Ukranian central bank reserves, and such a withdrawal would be in violation of Ukrainian law, plus the proposal would "damage long-term growth" of the country.

(3) And like the Greeks, Ukraine's Finance Minister justified Ukraine's objections to its creditor's repayment terms because the creditors made the debt payment arrangement with a previous government, a government Jaresko called a "dictatorship".

Creditors replied that Ukraine's plan would result in a 40 percent haircut on the $70 billion dollars owed them. Russia's Finance Minister Anton Siluanov announced that his country can and will sue under British law if if Ukraine does not repay Russia $3 billion it lent the country by the end of this year.

You would think these events would result in the same result that the Greek standoff with creditors has? No?

No! The IMF said it will release $40 billion to Ukraine even if the country makes good on its threat to place a moratorium on repayment of its debt to creditors.

Greece has not passed a law allowing it to impose a debt moratorium or even made a threat not to repay its debt until today, yet the IMF isn't demanding Greece's creditors take a haircut. The IMF stands firmly behind Greece's creditors.

The intervention by the IMF on behalf of a debtor country like Ukraine is extraordinary. And it may land the IMF in hot water with Russia.

The IMF's Lending-into-Arrears Policy, the clause that Christine Lagarde used to justify paying the $40 billion to Ukraine in spite of that country's creditors' wishes, prohibits bilateral lending between countries.

This IMF technicality could give Russia the right to veto restructuring of Ukraine's debt if the IMF rules say that Russia has standing as an "official creditor." And here, perhaps we come to the real reason the IMF is favoring Ukraine over Greece.

True, Ukraine is not a member of the European Union nor the eurozone as Greece is, and Ukraine has been far more cooperative with the IMF than Greece has, and it is not as indebted as Greece.

But there is another difference between these countries that could be even more significant. Greece has not been recently invaded by Russia.

Russia seized Crimea from Ukraine in 2014. Ukraine might lose more territory to Russia. Bond creditors in Europe and the US do not want this to happen.

So here we come to the bigger question. Unlike the World Bank which promotes development of poorer countries, "the IMF is a cooperative institution that seeks to maintain an orderly system of payments and receipts between nations."

In other words the IMF is an international clearinghouse used for settling foreign financial transactions among member countries. IMF membership is voluntary. Members pool their funds to back IMF transactions and agree to avoid "practices injurious to the economic well-being of their fellow member nations."

So, is it right for the IMF to be over-riding the wishes of voters in one democratic nation while supporting the wishes of voters in another democratic nation--based solely on the IMF's own criteria for repayment of sovereign debts to creditors?

Is the IMFs favoritism of Ukraine over Greece purely due to financial policy as claimed, or is the IMF's process actually based on a hidden political agenda?