Russia-Ukraine Conflict Update: $3B Debt Paves Path For 'Legal War'

In the latest economic battle between Russia and Ukraine, Ukrainian government officials said Thursday the country was prepared to go to court over a $3 billion bond note owed to Russia, Bloomberg reported. Finance Minister Natalie Jaresko negotiated a 20 percent writedown on $18 billion worth of bonds in August, but Russia refused to participate in the restructuring.

"We're ready for the legal war with the Russian Federation," said Prime Minister Arseniy Yatseniuk at a press briefing in Kiev Thursday, according to local news source Interfax.

The $3 billion note was expected to be due to Russia Dec. 20. The Russian government bought the $3 billion bond from the government of former Ukrainian President Viktor Yanukovych in early 2014. Yanukovych fled Ukraine in February 2014 following months of protests over his refusal to sign an association agreement with the European Union. Yanukovych now resides in Russia.

“We suggest on Oct. 29 they accept the same terms which were accepted by all Ukrainian creditors,” Yatseniuk said, referring to Russia. “If they think they are unique, we are ready for the court’s case with the Russian Federation.”

Russia has said the bond was a loan to the government and therefore should not be part of debt restructuring.

Ukraine’s economy has been badly battered since the annexation of Crimea by Russia in March 2014 and the start of the ensuing conflict in the eastern Donbass region that has left more than 8,000 dead and displaced more than 1.4 million people. The World Bank predicted earlier in October that Ukraine's gross domestic product would fall by 12 percent by year's end.

Ukrainian officials battled for months to have creditors led by Franklin Templeton agree to the 20 percent writedown on the $18 billion worth of bonds. Investors holding $15 billion worth of Eurobonds approved the deal Wednesday.

Ukraine needed to lower its debt in order to meet the International Monetary Fund’s $17.5 billion bailout conditions. Russian President Vladimir Putin said the IMF should help Ukraine repay its debt to Russia.

“It would seem simpler to proceed this way: Provide Ukraine with these $3 billion so it can pay and that everyone is happy,” Putin said Tuesday, according to AFP.

The Ukrainian government has said it would not allow Russia to hold its IMF bailout package “hostage.”