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Ukraine’s prime minister Arseny Yatseniuk said his government had imposed a moratorium on a $3bn Eurobond held by Russia after Moscow refused to accept the terms of a restructuring of the debt.
He said in a government meeting:
Since Russia has refused, despite our repeated efforts to sign a restructuring agreement... to accept our proposals, the cabinet is imposing a moratorium on repayment of the so-called Russian bond.”
The Eurobond matures on Sunday, but Ukraine has a 10-day grace period before it will be considered to be in default.
Ukraine will also cancel payments on $507m of Ukrainian commercial debt held by Russian banks.
The news that Ukraine’s government has announced a moratorium on its $3bn bond held by Russia’s National Welfare Fund is not surprising, says William Jackson, senior emerging markets economist at Capital Economics. It has, unsurprisingly, created significant (additional) political acrimony between Russia and Ukraine. He writes:
But, coming alongside concerns about the Ukrainian parliament’s rejection of the new tax code and the draft 2016 budget, it does feed into broader concerns that the country’s IMF programme is now at risk.
The Kremlin chose not to participate in Ukraine’s debt restructuring with private creditors earlier in the year. Russia had, apparently, offered to restructure the debt separately, with the principal to be repaid in $1bn annual instalments over the next three years, which Ukraine rejected. Ukraine’s government has claimed that Russia rejected its own restructuring proposal.
In terms of what today’s news means for the country’s IMF bailout, the implications are unclear as yet. According to a recent decision, the IMF can continue to lend to countries in arrears to official creditors (the Fund deems this bond to be official) “subject to the debtor’s good faith efforts” to reach a deal. The Ukrainian authorities have claimed that they have already done so, and are prepared to continue in a similar vein. But it’s not difficult to envisage any debt talks breaking down.”
Jackson concludes that along with the IMF’s concerns voiced today about parliament’s rejection of the new tax code and 2016 budget, “there seems to be a growing risk that the country’s bailout could be put on hold”.
Ukraine imposes moratorium on $3bn Russian bonds
More on Ukraine: the country has imposed a moratorium on the repayment of its $3bn Russian bonds, which were issued by Ukraine’s previous Moscow-backed government to Russia in late 2013 and were set to mature on Sunday.
Here’s the statement from Ukraine:
The Cabinet of Minister of Ukraine has approved today the moratorium proposed by the Ukrainian Government to suspend payments of the December 2015 Eurobonds. This moratorium also encompasses Ukraine’s sovereign-guaranteed loans for Ukravtodor and Yuzhnoye....
Ukraine remains committed, without prejudice to its position on the underlying debt obligations themselves, to negotiating in good faith a consensual restructuring of the December 2015 Eurobonds which will allow it to remain in compliance with the financing targets agreed with the IMF under the Extended Fund Facility, while meeting its contractual commitments to other bondholders. Ukraine reserves all its rights under any applicable law or regulation in connection with the December 2015 Eurobonds.
The Ukrainian Government expects that the IMF’s new Lending into Official Arrears policy will allow the IMF to continue financing Ukraine under the Extended Fund Facility, notwithstanding the IMF’s position on the December 2015 Eurobonds and today’s decision on suspension of payment thereunder.”
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Meanwhile, official figures show that Britain’s richest households have pulled further ahead of the rest of the population as house prices have accelerated, with the top 10% now owning almost half of the country’s £11.1trn total private wealth. My colleague Heather Stewart on the economics desk writes:
The Office for National Statistics (ONS) said average household wealth was £225,100 in 2012-14, when it carried out its latest survey of the nation’s assets.
Since the previous survey was carried out two years earlier, the top tenth of households had seen a 21% increase in their wealth, including property. Over the same period, the poorest half of households also saw their wealth rise — but only by 7%.
That left the top tenth of households owning 45% of total wealth, while the bottom half were left with just 9%.
You can read the full story here.
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The International Monetary Fund has issued a statement on Ukraine this morning. The Washington-based organisation is not happy that the Ukrainian parliament has rejected the government budget, and warns that it could have implications for the financial support package Ukraine is receiving.
David Lipton, the IMF’s first deputy managing director, said:
It is with concern that we have observed the discussions yesterday in Parliament that effectively rejected the government’s proposals for a new tax code and the government budget for 2016.
Approval of a budget consistent with the program objective of reducing the general government deficit to 3.7 percent of GDP is a key condition for the completion of the second review under the EFF-supported program. At the same time, it is equally important that the budget is supported by structural reforms to remove exemptions and widen the tax base, as well as streamline government spending on a sustainable basis, which also are key objectives of the program.
Approval of a budget that deviates from program objectives for 2016 and the medium-term will interrupt the program and inevitably disrupt the associated international financing.”
Back to interest rates. David Blanchflower, a former member of the Bank of England’s monetary policy committee, argues that the Federal Reserve has raised rates too soon. In a guest blog for the Guardian, he writes:
It seems to me there is a 50/50 probability that this hike will have to be reversed and the worry is that this might mean rates going negative. This is what happened with the ECB, which raised rates twice in 2011, and now has negative rates.”
The Unite union warns that Sports Direct’s review of its use agency workers will be nothing more than a public relations stunt if it fails to end ‘Victorian’ work practices at the retailer’s Shirebrook warehouse.
Likening working conditions in the warehouse to a ‘gulag’, the Guardian investigation also found that workers were being ‘docked’ wages for arriving just one a minute late to work.
Unite regional officer Luke Primarolo said:
Shameful ‘Victorian’ work practices have no place in modern Britain and this review should not deter HMRC from investigating the non-payment of the minimum wage to agency workers at Sports Direct.
Unite has repeatedly raised concerns with the board and Mike Ashley directly about the use of ‘Victorian’ work practices. We look forward to participating fully with Mike Ashley’s review and to working with Sports Direct to eradicate the mistreatment of workers at its Shirebrook warehouse.
If his review is to be taken seriously then it has to have concrete outcomes, such as restoring dignity at work by moving agency staff at Best Connection and Transline workers onto permanent contracts.
A failure to do so will do nothing to restore investor and customer confidence and leave the board open to accusations of doing nothing more than engaging in a public relations stunt.”
Pound on track for worst week in seven
The pound has perked up a bit today, after hitting an eight-month low against the dollar yesterday when investors bought dollars in the wake of the Fed’s interest rate hike.
But sterling is still on track to notch up its worst weekly performance in seven weeks, as investors assume the Bank of England is in no rush to follow in the footsteps of the Fed and raise borrowing costs. Data this week showing inflation at zero and wage growth slowing will keep pressure off the Bank.
The pound is up nearly 0.2% today at $1.4925, after falling to $1.4865 yesterday – the lowest since late April. This week, sterling has lost about 2%.
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Sports Direct has issued a long list of rebuttals of criticism of its employment practices. More details in my updated story. You can read the company’s statement here.
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Sports Direct launches review of agency staff's conditions
Sports Direct has announced it will launch a review of all agency staff’s terms and conditions, to be overseen personally by its founder Mike Ashley.
The move follows a Guardian investigation, which revealed how temporary warehouse workers at Britain’s biggest sportswear chain are subjected to an extraordinary regime of searches and surveillance. Undercover reporters also came up with evidence that thousands of workers were receiving effective hourly rates of pay below the minimum wage.
In a lengthy statement, the company mounted a robust defence of its employment practices, saying:
The board takes its responsibilities towards all the company’s stakeholders, be they staff, contractors, suppliers or customers, extremely seriously. Without our commitment to our staff and the implementation of a performance-led culture which encourages success, there is no way Sports Direct would have been able to grow from a single sports shop over 33 years ago to the global retailer it is today.”
But it added:
Sports Direct always seeks to improve and do things better, listens to criticism and acts where appropriate.
With that in mind ... the board has agreed that Mike Ashley shall personally oversee a review of all agency worker terms and conditions to ensure the company does not just meet its legal obligations, but also provides a good environment for the entire workforce. We expect him to start that work in the New Year.”
You can read the full story here.
European stock markets have opened lower, as expected.
- FTSE 100 index in London down 0.5%
- Germany’s Dax down 0.9%
- Spain’s Ibex down 1.3%
- Italy’s FTSE MIB down 1%
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The Bank of Japan surprised financial markets on Friday by taking steps to bolster its quantitative easing programme, which it said were supplementary measures.
The unexpected move gave a brief boost to stocks, but the Nikkei closed down 1.9% as enthusiasm turned to disappointment. The dollar was in for a wild ride, initially surging against the yen, before falling back when investors had a closer look at the measures.
The Bank of Japan announced a new programme to buy equity-traded funds and lengthened the average maturities on the bonds it buys. But the central bank kept the overall target of annual asset purchases at around 80 trillion yen.
In Europe, stock markets are expected to open lower as the post-Fed rally peters out. Asian and European stock markets surged on Thursday as investors responded favourably to the Fed’s first rate hike in nearly a decade.
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