The IMF thus is breaking four rules: Not lending to a country that has no visible means to pay back the loan breaks the "No More Argentinas" rule adopted after the IMF's disastrous 2001 loan. Not lending to countries that refuse in good faith to negotiate with their official creditors goes against the IMF's role as the major tool of the global creditors' cartel. And the IMF is now lending to a borrower at war, indeed one that is destroying its export capacity and hence its balance-of-payments ability to pay back the loan. Finally, the IMF is lending to a country that has little likelihood of refuse carrying out the IMF's notorious austerity "conditionalities" on its population -- without putting down democratic opposition in a totalitarian manner. Instead of being treated as an outcast from the international financial system, Ukraine is being welcomed and financed.
The upshot -- and new basic guideline for IMF lending -- is to create a new Iron Curtain splitting the world into pro-U.S. economies going neoliberal, and all other economies, including those seeking to maintain public investment in infrastructure, progressive taxation and what used to be viewed as progressive capitalism. Russia and China may lend as much as they want to other governments, but there is no international vehicle to help secure their ability to be paid back under what until now has passed for international law. Having refused to roll back its own or ECB financial claims on Greece, the IMF is quite willing to see repudiation of official debts owed to Russia, China or other countries not on the list approved by the U.S. neocons who wield veto power in the IMF, World Bank and similar global economic institutions now drawn into the U.S. orbit. Changing its rules to clear the path for the IMF to make loans to Ukraine and other governments in default of debts owed to official lenders is rightly seen as an escalation of America's New Cold War against Russia and also its anti-China strategy.
Timing is everything in such ploys. Georgetown University Law professor and Treasury consultant Anna Gelpern warned that before the "IMF staff and executive board [had] enough time to change the policy on arrears to official creditors," Russia might use "its notorious debt/GDP clause to accelerate the bonds at any time before December, or simply gum up the process of reforming the IMF's arrears policy."[13] According to this clause, if Ukraine's foreign debt rose above 60 percent of GDP, Russia's government would have the right to demand immediate payment. But no doubt anticipating the bitter fight to come over its attempts to collect on its loan, President Putin patiently refrained from exercising this option. He is playing the long game, bending over backward to accommodate Ukraine rather than behaving "odiously."
A more pressing reason deterring the United States from pressing earlier to change IMF rules was that a waiver for Ukraine would have opened the legal floodgates for Greece to ask for a similar waiver on having to pay the "troika" -- the European Central Bank (ECB), EU commission and the IMF itself -- for the post-2010 loans that have pushed it into a worse depression than the 1930s. "Imagine the Greek government had insisted that EU institutions accept the same haircut as the country's private creditors," Russian finance minister Anton Siluanov asked. "The reaction in European capitals would have been frosty. Yet this is the position now taken by Kiev with respect to Ukraine's $3 billion eurobond held by Russia."[14]
Only after Greece capitulated to eurozone austerity was the path clear for U.S. officials to change the IMF rules in their fight to isolate Russia. But their tactical victory has come at the cost of changing the IMF's rules and those of the global financial system irreversibly. Other countries henceforth may reject conditionalities, as Ukraine has done, and ask for write-downs on foreign official debts.
That was the great fear of neoliberal U.S. and Eurozone strategists last summer, after all. The reason for smashing Greece's economy was to deter Podemos in Spain and similar movements in Italy and Portugal from pursuing national prosperity instead of eurozone austerity. Opening the door to such resistance by Ukraine is the blowback of America's tactic to make a short-term financial hit on Russia while its balance of payments is down as a result of collapsing oil and gas prices.
The consequences go far beyond just the IMF. The fabric of international law itself is being torn apart. Every action has a reaction in the Newtonian world of geopolitics. It may not be a bad thing, to be sure, for the post-1945 global order to be broken apart by U.S. tactics against Russia, if that is the catalyst driving other countries to defend their own economies in the legal and political spheres. It has been U.S. neoliberals themselves who have catalyzed the emerging independent Eurasian bloc.
Countering Russia's ability to collect in Britain's law courts
Over the past year the U.S. Treasury and State Departments have discussed ploys to block Russia from collecting under British law, where its loans to Ukraine are registered. Reviewing the repertory of legal excuses Ukraine might use to avoid paying Russia, Prof. Gelpern noted that it might declare the debt "odious," made under duress or corruptly. In a paper for the Peterson Institute of International Economics (the banking lobby in Washington) she suggested that Britain should deny Russia the use of its courts as an additional sanction reinforcing the financial, energy, and trade sanctions to those passed against Russia after Crimea voted to join it as protection against the ethnic cleansing from the Right Sector, Azov Battalion and other paramilitary groups descending on the region. [15]
A kindred ploy might be for Ukraine to countersue Russia for reparations for "invading" it, for saving Crimea and the Donbass region from the Right Sector's attempt to take over the country. Such a ploy would seem to have little chance of success in international courts (without showing them to be simply arms of NATO New Cold War politics), but it might delay Russia' ability to collect by tying the loan up in a long nuisance lawsuit.
To claim that Ukraine's debt to Russia was "odious" or otherwise illegitimate, "President Petro Poroshenko said the money was intended to ensure Yanukovych's loyalty to Moscow, and called the payment a 'bribe,' according to an interview with Bloomberg in June this year."[16] The legal and moral problem with such arguments is that they would apply equally to IMF and US loans. Claiming that Russia's loan is "odious" is that this would open the floodgates for other countries to repudiate debts taken on by dictatorships supported by IMF and U.S. lenders, headed by the many dictatorships supported by U.S. diplomacy.
The blowback from the U.S. multi-front attempt to nullify Ukraine's debt may be used to annul or at least write down the destructive IMF loans made on the condition that borrowers accept privatizations favoring U.S., German and other NATO-country investors, undertake austerity programs, and buy weapons systems such as the German submarines that Greece borrowed to pay for. As Foreign Minister Sergei Lavrov noted: "This reform, which they are now trying to implement, designed to suit Ukraine only, could plant a time bomb under all other IMF programs." It certainly showed the extent to which the IMF is subordinate to U.S. aggressive New Cold Warriors: "Essentially, this reform boils down to the following: since Ukraine is politically important -- and it is only important because it is opposed to Russia -- the IMF is ready to do for Ukraine everything it has not done for anyone else, and the situation that should 100 percent mean a default will be seen as a situation enabling the IMF to finance Ukraine."[17]
Andrei Klimov, deputy chairman of the Committee for International Affairs at the Federation Council (the upper house of Russia's parliament) accused the United States of playing "the role of the main violin in the IMF while the role of the second violin is played by the European Union. These are two basic sponsors of the Maidan -- the symbol of a coup d'etat in Ukraine in 2014."[18]
Putin's counter-strategy and the blowback on U.S.-European and global relations
As noted above, having anticipated that Ukraine would seek reasons to not pay the Russian loan, President Putin carefully refrained from exercising Russia's right to demand immediate payment when Ukraine's foreign debt rose above 60 percent of GDP. In November he offered to defer payment if the United States, Europe and international banks underwrote the obligation. Indeed, he even "proposed better conditions for this restructuring than those the International Monetary Fund requested of us." He offered "to accept a deeper restructuring with no payment this year -- a payment of $1 billion next year, $1 billion in 2017, and $1 billion in 2018." If the IMF, the United States and European Union "are sure that Ukraine's solvency will grow," then they should "see no risk in providing guarantees for this credit." Accordingly, he concluded "We have asked for such guarantees either from the United States government, the European Union, or one of the big international financial institutions." [19]
The implication, Putin pointed out, was that "If they cannot provide guarantees, this means that they do not believe in the Ukrainian economy's future." One professor pointed out that this proposal was in line with the fact that, "Ukraine has already received a sovereign loan guarantee from the United States for a previous bond issue." Why couldn't the United States, Eurozone or leading commercial banks provide a similar guarantee of Ukraine's debt to Russia -- or better yet, simply lend it the money to turn it into a loan to the IMF or US lenders?[20]
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