(MENAFN- AFP) Ukraine stepped back from the brink of default Thursday with a crucial debt deal that sees lenders accept a 20-percent write-down and keeps global markets open to the cash-strapped ex-Soviet state.
The announcement marks a monumental victory for Finance Minister Natalie Jaresko -- a US-born economist whom President Petro Poroshenko plucked from a Kiev investment firm in December and tasked with saving the war-torn country from running out of cash.
Prime Minister Arseniy Yatsenyuk described the agreement as a blow to "enemy" Russia.
And International Monetary Fund head Christine Lagarde said she was "very pleased" because the deal "will help restore debt sustainability" in a strategic nation that has seen its debt to gross domestic product ratio balloon to an estimated 140 percent.
Franklin Templeton and three other financial titans that hold nearly half of the $19 billion (16.8 billion euros) in commercial debt under discussion had originally argued that the east European nation was in strong enough shape to repay what it owed in full.
"I think it's a historic success for Ukraine, I think for emerging markets generally," Jaresko told AFP in an interview shortly before Yatsenyuk made the formal announcement at a televised government meeting.
The painful talks lasted for five months and saw the both the IMF and Washington put immense pressure on bondholders to accept short-term losses in return for keeping Ukraine's pro-Western leaders from being forced into resuming their reliance on Russia.
Ukraine's economy is expected to shrink nearly 10 percent this year due in part to the loss of key coal and steel mining factories in the pro-Russian separatist east.
The resulting industrial production slump of about 20 percent has also limited Ukrainian exports and made Kiev increasingly reliant on outside help.
"Why is (the deal) important" Jaresko asked in the English-language interview.
"We were already at the point as a country where the commercial creditors said: 'Too risky.' Now the official creditors said: 'Within limits, we will support you.'"
- 'Belief in Ukraine' -
The possibility of Ukraine either outright defaulting on its obligations or imposing a payment freeze could have shut Kiev out of global borrowing markets and severely hampered its IMF-led austerity and economic restructuring drive.
The IMF had patched together a $40 billion (35.5 billion euro) rescue package aimed at stabilising the country's financial footing after more than two decades of corruption saw its economy shrink from levels seen in Soviet times.
But that deal required a compromise with bondholders that could save the nation $15.3 billion over the next four years.
The deal will see the lenders take a 20-percent "haircut" to the face value of their bonds but obtain slightly higher interest payments in return.
Ukraine agreed to raise its coupon rates to 7.75 percent from 7.2 percent while the lenders accepted slightly longer repayment terms.
The compromise also keeps Ukraine from being forced into making any principal payments should its real annual growth rate stay below three percent.
"The deal avoids default (and the use of a moratorium) on debt payments," the Ukrainian finance ministry said in a statement.
The bondholders called the financial pact "confirmation of the private sector's confidence and belief in Ukraine and our willingness to invest in its future recovery."
- Russia payment worries -
Thursday's agreement saves Ukraine $11.5 billion but is still short of the target set by the IMF.
A separate set of restructuring deals with other private lenders expected in the coming days will fill part of the remaining gap.
But still unresolved and increasingly worrying is the future of a $3.0 Eurobond that Russian-backed ex-president Viktor Yanukovych issued months before his ouster by pro-European street protesters.
The payment must be made to Russia -- accused by Kiev and the West of orchestrating the 16-month eastern uprising in reprisal for its western neighbour's pro-European drive -- by December 20 or see Kiev sued by Moscow.
Ukraine believes the sum should be treated as a commercial loan that should be restructured along the lines of Thursday's agreement.
But Russia calls the $3-billion a government-to-government loan whose repayment is mandated by international law.
"Ukraine officially announces that Russia under no circumstances will receive terms better than those received by the other creditors," Yatsenyuk told the cabinet meeting.
"There is still no clarity on how Ukraine will deal with its Russia bond," emerging markets analyst Liza Ermolenko of Capital Economics wrote in a research note.
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