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Ukraine PM threatens non-payment of Russian debt

The tension between the two neighbors could escalate even further after the Ukrainian Prime Minister has said Kyiv will not pay back the billions it owes Moscow, unless Russia agrees to a restructuring deal.

The 19-month conflict between Ukraine and Russia risked reaching a new level of tension after the head of the government in Kyiv warned that Moscow could kiss good-bye to the $3 billion (2.7 billion euros) it lent the crisis-hit country in 2013, unless it got behind a broad debt exchange deal by Thursday.

If Russia does not agree to the terms offered by Kyiv, "then we will impose a debt moratorium and not service the credit," Ukrainian Prime Minister Arseniy Yatsenyuk told German business daily "Handelsblatt" on Monday,

following high-level talks

with German government and business leaders. "We cannot treat Russia differently from other international creditors,” he added,

Ukraine has negotiated a restructuring of its debt with international creditors to patch a $15-billion funding hole under an International Monetary Fund-led $40-billion bailout program.

Russian 'bribe'

But, so far, Russia has rejected Ukraine's appeal to participate in the process. Moscow holds $3billion in Eurobonds in the 14 sovereign and sovereign-guaranteed bonds earmarked for restructuring, but insists that the debt constitutes an official loan as opposed to a commercial one.

Watch video 01:38

Support for Ukraine's economy

"In reality, these $3 billion were nothing but a bribe from Russia, so that then-President Viktor Yanukovych would thwart the Association Agreement with the EU," Yatsenyuk said in the interview.

Moscow purchased the bond in December 2013 as part of a plan to rescue the pro-Russian Yanukovych, whose anti-EU move triggered the street protests that led to his downfall and catapulted Ukraine into the quasi-civil war that's plagued the country's eastern region for nearly two years.

Kyiv grounds flights

Anger over Moscow's involvement in the crisis, which has claimed at least 8,000 lives, this weekend led Ukraine to

ban direct flights

to Russia. The Kremlin was quick to denounce the sanction as "madness," but soon vowed to mirror the move.

Tens of thousands Ukrainians have relatives in Russia, with an estimated average of 100,000 people flying between the two countries each month.

"Strong move!" Russian Prime Minister Dimitry Medvedev wrote sarcastically on his Facebook page, adding: "Another brilliant example of the Ukrainian authorities fighting their own people." Russia continues to deny any responsibility for the conflict next door.

Fighting off bankruptcy

The latest escalation makes the prospect of striking a deal all the more elusive. Ukraine is under intense pressure to secure a debt relief agreement as it struggles to stave off bankruptcy, its economy crippled by the separatist conflict.

Years of

corruption and economic mismanagement

have also bled the state's coffers all but dry. But in the interview with "Handelsblatt," Yatsenyuk insisted that his government had "mucked out" the mess left behind by crooked oligarchs.

"For the first time in a decade, we've fundamentally reformed our energy sector, which was completely over-subsidized and had come to serve as a cornucopia for tycoons…Today, there are no oligarchs and no bribes left in the gas industry," he said.

"Big Business no longer holds any sway over the government, nor does it have any representatives left in the [Cabinet of Ministers]."

pad/hg (AFP, Reuters)

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