George Soros’ opinion on Ukraine’s debt relief dilemma

According to the International Monetary Fund demands and George Soros, a country is supposed to negotiate a deal with its creditors before it qualifies for additional financial support. Ukraine has been caught up in the struggle to achieve this. Russia has piled more pressure on Ukraine. Ukraine owes Russia a total of $19 billion in debt, an amount that Ukraine can’t sustain. Currently, in San Francisco, Ukraine is in talks with Russia, trying to renegotiate the debt.

It is quite unfortunate for Ukraine as there in no rule to draw the line that shows the point at which tension between the lenders and borrowers should cease. There is no law that provides a platform on which lenders and borrowers can reorganize debts or mediate negotiations. All that is left for Ukraine to do is push for its own negotiations with its lenders. In such a situation for George Soros Ukraine, the only way Ukraine can get itself out of this mess is by threatening to default payment of the amount if it doesn’t get debt relief. This, however, will serve as a warning notice for other stakeholders not to invest a dime in the country.

The impact of defaulting is costly. Greece, for example, had its lenders drag out of the battle. This has had a negative impact on the economy. From George’s point of view, striking a deal is better, even if the deal puts the lenders at a loss. There will obviously be a negative effect on the borrower’s side if the two parties strike a deal, but the country would get back to its feet in not more than two years.

George Soros goes on to give an example of Nicholas Brady, a former U.S. Treasury Secretary. In 1989, Nicholas talked banks into accepting debt relief for Latin countries pursuing sensible reforms. This was because of his understanding that most investors would look at a country’s future when considering whether to lend funds to a defaulting country. Right now, Mr. Brady heads Darvy Overseas Investments, one of Ukraine’s largest holder of bonds.

Mr. George Soros also looks at the situation from an investor’s point of view. He explains that investors in Ukraine are rallying for the government to oppose debt relief as it would mean that they lose money. There is no investor that likes losing money on his investments.

The Ukrainian government is trying to have reforms such as Mr. Brady’s. Such reforms would call for radical changes in the government for instance; major changes in the country’s judicial system, reforming the economy to suit the European Union’s standards and rooting out corruption among many other reforms according to George Soros. The country also has the option of aligning law reforms along the lines of chapter 11. This would however be difficult as such efforts are liable to the founder. This is quite unfortunate for Ukraine as they can’t base their defaulting arguments like the U.S. can. If this had been possible, the Ukrainian government would have implemented the bankruptcy code. The code makes debt relief easier for companies that are in huge debts that they can’t seem to pay.

Learn more about George Soros and Ukraine at Bloomberg
Read more of George Soros’s opinions about the Ukraine on Project Syndicate