Ukraine and its creditors hit a new stumbling block Wednesday after a new debt restructuring offer from Kiev and call for a "decisive" final meeting drew only a lukewarm response.
Sources close to both Kiev and the four big commercial debt holders told AFP that Ukrainian Finance Minister Natalie Jaresko's idea of holding a potentially definitive meeting in London on Thursday may have to be pushed back.
The cash-strapped former Soviet nation must strike a debt restructuring agreement before it is due to make principal and interest payments of more than $500 million on a Eurobond maturing on September 23.
Franklin Templeton and three other US financial titans own about two-thirds of the debt upon which Ukraine is trying to find savings of $15.3 billion over the coming four years.
That target is part of a $40-billion global package the International Monetary Fund patched up to help Ukraine weather an economic implosion that is being exasperated by the pro-Russian revolt in its industrial east.
Jaresko's office submitted Tuesday a revised offer to the bondholders that it said was "fully in compliance with the targets of the IMF-supported programme."
"This week will be decisive for the negotiations," the Ukrainian finance ministry said.
The two sides have spent more than four months arguing over how much of the bonds' face value could simply be written down due to Kiev's evident cash constraints.
Ukraine had initially sought a 40-percent cut. The main lenders this month came out with a counter-offer that would see a reduction of between five and 10 percent of the assets' original value under very strict terms.
Sources said the two sides were also at odds over the length of a possible debt maturity extension.
One person said the lenders want to see Kiev start making repayments as soon as it returns to growth. Another official said this issue was not as vital to the discussions as the write-off.
It was not immediately clear where the possible middle ground in the negotiations stood.
But a source close to the so-called Ad-hoc Committee of Noteholders to Ukraine said it viewed a meeting in London on Thursday as premature.
The person close to the bondholders said the four chief US negotiators were dissatisfied with Jaresko's latest proposal and believed that the 48-hour notice given was insufficient.
A source in Ukraine said the talks may have to be pushed back until the weekend. The person added that Jaresko was expecting to hear more details from the creditors later Wednesday.
- September 23 -
Kiev has used $4.2 billion of the $5.0 billion it has received from the IMF in the first half of the year paying off its past commitments.
Ukraine received a new $1.7-billion payment Tuesday and expects double that amount by the end of the year.
But economists fear that Ukraine's estimated debt to gross domestic product ratio of 135 percent is incompatible with an economic recovery in the short term.
The Fund therefore wants the Western leadership that emerged in the wake of last year's ouster of a Russian-backed administration to focus its resources on overdue economic restructuring measures that could lead to sustainable growth.
A source close to the negotiations said the terms of the IMF-led rescue meant that Kiev cannot make the September 23 repayment even if it had made the political decision to do so.
"If this payment, which is substantial, is made, it would make Ukraine unable to meet the IMF programme target –- to achieve $15.3 billion in savings in payments due in the programme term," the person told AFP.
"Essentially making that payment in full would push (Ukraine) over that target."
Economists believe that the current debt negotiations will thus determine how Ukraine slips into "technical default" next month.
A deal would probably shield Kiev from being declared in "default" by the major global credit rating agencies and help keep its costs of borrowing down.
Economists fear that failure to strike an agreement will push Kiev into unchartered territory in which it might even have its foreign assets seized.