ASTANA May 3 Ukraine will probably default on
its international debts if it loses more territory, ratings
agency Standard & Poors warned on Saturday, noting its existing
CCC rating on the country already indicated a clear and present
danger of default.
"If Ukraine loses some of its territorial integrity, it will
not likely be able to repay the loans," John Chambers, chairman
of the Standard & Poor's Sovereign Ratings Committee, told
Reuters in the Kazakh capital Astana.
Russia has already annexed Ukraine's Crimea region and
tensions are rising in other parts of the country. At least 42
people were killed in street battles between supporters and
opponents of Russia in the Black Sea port city of Odessa on
Friday, that ended with pro-Russian protesters trapped in a
"Ukraine came into the crisis with a moderate government
debt burden at the existing exchange rate. But obviously, if the
exchange rate collapses and they lose additional parts of their
territory, their ability to service their debt will be
jeopardized," Chambers said.
S&P in February cut Ukraine's long-term foreign currency
rating to CCC with a negative outlook, noting even then the
political situation had deteriorated substantially and seeing a
clear risk of default.
The International Monetary Fund this week signed off on a
$17 billion two-year aid programme for Ukraine to help the
economy recover after months of turmoil. But it warned that any
loss of territory in the east would likely require additional
The IMF also said a deterioration in relations between
Ukraine and Russia, a key export market for Kiev, could further
hurt Ukraine's economy.
The first IMF disbursement of $3.2 billion to Kiev will help
it meet immediate payments. It faces a series of other
repayments this year, but has also lined up funds including $2.7
billion from the European Union, of which it expects up to $1
billion this month.
Despite Ukraine's current upheaval, the leadership in Kiev
which was installed in February wants to conduct a nationwide
presidential election on May 25. Meanwhile its economy is set to
shrink this year.
"Whatever projections anyone makes, they will be determined
by a political scenario," Chambers said. "So, if you can have a
smooth election and maintain the territorial integrity of
Ukraine ex-Crimea, it's going to give you a much better outcome
than if this problem festers ... Things have deteriorated in the
past few days.
"It's probably too early to discuss a divided Ukraine", he
added, noting that besides an industrial base in the east the
country has industry in other parts, as well as strong
agricultural output, while "its human capital is as good as in
any other country in the region".
"But, clearly, if you are in a period of high political
instability, it diminishes your ability to service your debt or
to deliver governmental services in general."
(Editing by David Holmes)