Ukraine, creditors at loggerheads

Ukraine and a group of its largest creditors on Friday sharply criticized each other's stance in talks to restructure $23 billion of state debt ahead of an important meeting next week.

The two sides are at odds over the necessity of a writedown in the face value of the bonds. Talks have been going on for three months with neither side showing signs of budging from their positions.

Ukraine, which is seeking to plug a $15.3 billion funding gap, is meeting bondholders and the International Monetary Fund on June 30 in Washington to discuss what it has called its "last chance" offer.

Ukrainian Finance Minister Natalia Yaresko said the creditor group had "so far refused to contribute to Ukraine's recovery," warning that Kiev was ready to cut off debt payments if negotiations do not progress.

"The government recognizes that the creditors may not be prepared to agree, and may continue to block progress toward a solution," Yaresko said in a statement.

"In this case the government is prepared to use its existing legal power to suspend payments."

Kiev says a writedown is needed to make its debt burden more acceptable, while creditors say the necessary savings can be achieved without such a "haircut".

Responding to Yaresko's comments, the creditor group said accusations that they had refused to help Ukraine were "inaccurate."

The group reiterated that it had made a comprehensive offer to Ukraine that would save Ukraine almost $16 billion over four years without requiring a haircut and amounted to "even greater support than (what) the public sector" had offered.

"The Committee again requests that negotiations start as soon as possible, without preconditions and with an emphasis on solutions, and urges Minister Yaresko to join the important Washington meeting next week," it said in a statement.

On Thursday, Yaresko said Ukraine's debt envoy Vitaly Lisovenko would be attending the meeting in her stead.

The meeting in Washington will clarify the technical details of the two sides positions rather than formally start their debt restructuring negotiations, Lisovenko said on Friday.

"After this it will be very simple. To meet or not to meet, to pay or not to pay," he told journalists on the sidelines of a finance conference in Frankfurt.

Ukraine, backed by the IMF, has said bondholders' offer is unacceptable because it relies on using central bank reserves to repay the debt.

Seeking to sweeten the offer to creditors, Ukraine said last week its updated proposal included an instrument allowing creditors to recover more value if the economy performs better than currently projected.

This is in tune with one aspect of the creditors' offer which proposes that coupons be paid only when the economy recovers to a certain level.