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Ukraine Says it Can't Pay Off Debt to Russia

Russia's Finance Minister Anton Siluanov (R), seen in this May 8, 2015 photo with President Putin, on Thursday told Russian media that Moscow is ready to consider Ukraine's debt proposals but warned that time is running out.

Ukraine faces a looming debt default after the country's finance ministry said Thursday that the country cannot make a $3 billion debt due to Russia this weekend without violating a debt-restructuring deal with other international creditors.

Ukraine, which is supposed to pay down the debt by Sunday, said it is ready to keep negotiating with Russia about restructuring the debt. Russia has said it would sue Ukraine if it doesn't get its money back on time.

Relations between the two neighbors soured after Russia annexed the Crimean peninsula in March 2014 and threw its backing behind separatist rebels in eastern Ukraine. Ukrainian leaders have accused Moscow of sending troops and weapons to the east, a claim the Kremlin has vehemently denied.

The Ukrainian finance ministry said in a statement Thursday that it has "negotiated in good faith" with Russia but it cannot pay the bond debt without violating its deal with other international creditors.

Russian Finance Minister Anton Siluanov on Thursday told Russian news agencies that it is ready to consider Ukraine's proposals but warned that time is running out.

"We are ready to look at them," he said. "There are three days left. We have a plan. In case Ukraine defaults on its obligations, we will take steps to defend our interests."

Ukraine's statement comes a day after the International Monetary Fund said the 2013 debt to Russia is an intergovernmental loan and not a private one as Kyiv has claimed.

Ukraine has insisted that the loan, coming from a Russian state rainy day fund, should be considered private and therefore not be part of the IMF rules that require Kyiv to make good on its sovereign debt as part of its IMF bailout package.

Ukraine's struggling economy relies on IMF aid.

Kyiv also sought to give a political dimension to the debt, hinting that Russia bought Ukrainian bonds in December 2013 in an act of clandestine bribery of then President Viktor Yanukovych who was facing massive anti-government protests at the time.

In November, Russian President Vladimir Putin proposed a debt restructuring, saying Moscow would be willing to agree to payments of $1 billion a years between 2016 and 2018.

Ukraine turned down the offer, saying it cannot offer Russia a better deal than the one it negotiated with other debt holders. That involved a 20 percent write-down of bond holdings, which cut Ukraine's sovereign debt from $19 billion to $15.5 billion.