CORRECTED-UPDATE 1-Ukraine won't default, say finmin, c.bank

Thu Apr 19, 2012 11:41am EDT

By Sujata Rao and Clare Kane

LONDON, April 19 (Reuters) - Ukraine will not default on its debt, the country's finance minister said on Thursday, adding that the government would be able to meet all its funding obligations in a year of heavy external refinancing needs.

Ukraine must repay over $5.3 billion in external debt this year including $3 billion to the International Monetary Fund but is effectively cut off from international capital markets as the IMF has frozen its aid tranche to the ex-Soviet state.

But asked if there would be a default, Yury Kolobov told reporters in London: "Of course not."

"We are not experiencing any problems with borrowing. At our (bond) auctions we are seeing a lot of demand. Se we have a choice and there is no basis to borrow urgently at any yield," he said on the sidelines of the annual Adam Smith conference.

"There are many options."

He did not say what the options were. The government has said in the past it could try to raise cash on local bond markets where high yields have attracted investors. One-year hryvnia t-bills currently yield 20 percent while the Treasury has also raised cash locally in dollars.

Kolobov earlier told the conference: "Speaking on a topic which interests a lot of people, that is, funding, and speaking as a state representative, I can confidently say we have no worries. All those figures that we put in to the budget... we will meet all our obligations without any problems."

Central bank board member Olena Scherbakova also assured investors there would be no default, noting policymakers were considering both internal and external debt markets.

"It is not a matter of paying or not paying. Repayment of debt is important for the country's image. So certainly we will have to find means," she said. "If there is a window to tap the international markets, the country will go to international markets. We are working both internally and externally."

But tapping global markets could prove tough unless the IMF unfreezes its $15 billion aid programme to Ukraine.

This looks unlikely to happen soon as President Viktor Yanukovich's party, preparing for October elections, has launched $3 billion in extra spending and is refusing to meet IMF demands to cut huge subsidies of prices of imported gas.

Ukraine's IMF resident representative, Max Alier, told the conference that the fund was ready to support the country as long as it complied with the IMF's demands, particularly in relation to energy subsidies for households.

"Some progress has been achieved but in some areas we believe are key the progress has not been as positive," Alier said. "The energy and gas subsidies are imposing a very significant burden on the budget. Reforms in this sector are necessary."

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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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