IMF mulls rule changes to maintain aid to Ukraine

The International Monetary Fund is considering changing its rules to allow continued aid to Ukraine even if the country defaults on debt owed to Russia, a spokesman said Thursday.

Russia has refused to renegotiate $3 billion in debt that cash-short Ukraine is scheduled to repay by the end of the year.

But the stalemate between the two sides puts at risk the IMF's $17.5 billion financial rescue of Ukraine agreed in March.

Under its current internal rules, the IMF is not allowed to lend money to a country when it is in default on debt to the "official" sector, such as another government.

If Kiev defaults on the $3 billion Ukrainian Eurobond bought by Russia, the IMF in principle should cut off credit to Ukraine, even as the country reels from economic crisis and a pro-Russian insurrection.

The IMF is working on a reform of its lending policies to ease the rule in "carefully circumscribed circumstances," said Fund spokesman Gerry Rice.

"This has been part of a broader program of work related to the reform of our lending framework governing sovereign debt restructuring," Rice said.

The final decision on the ongoing work will come from the IMF's executive board, which should take up the matter in the near future, he said, without providing further details.

Under pressure from the IMF, Ukraine has reached an agreement with private creditors that wipes out $3.6 billion in debt and reschedules repayment on $8.5 billion.

In a statement Thursday, the Ukrainian finance ministry said that creditors involved in the debt restructuring should expect to receive new Ukrainian sovereign securities on November 12.

It had given Russia a deadline of Thursday to either accept the same restructuring terms or face a "legal war" in court.

Moscow refused to join the debt restructuring talks because it views the Eurobond as a sovereign loan that must be repaid by its due date on December 20.

The IMF reiterated its call Thursday for Ukraine and Russia to negotiate a deal to shore up the war-torn economy.

Rice said Thursday that "all sides" should be involved in "constructive" discussion on the debt restructuring, which would allow the IMF to keep supporting Ukraine to help rebuild its finances.

Russian President Vladimir Putin suggested in mid-October that the IMF simply give Kiev an additional $3.0 billion loan so that Ukraine can pay back its Russian debt.