Ukraine should not pay 'selfish' bondholders, ex-treasury secretary says

Writing in the Financial Times on Monday, Summers said the case for cutting Ukraine's debt burden was compelling, and failure to do so would confirm the view that "private financial interests disproportionately influence public policy".

Kiev, which is nearly bankrupt and fighting separatist rebels in eastern Ukraine, wants to restructure about $23 billion in bonds, as the contribution of private creditors to a $40 billion bailout. The IMF is providing $17.5 billion and is making loan disbursements conditional on a restructuring deal.

But a creditor committee, comprising Franklin Templeton and four other anonymous funds, refuses to accept a writedown in the bonds' face value.

Summers, who also served as the World Bank's chief economist, criticized the bondholders, noting that Franklin Templeton was supported by a number of fund managers "who are sufficiently embarrassed by their selfish and unconstructive position that they avoid public identification".

If there was a large enough group of "free riders", he said, other creditors such as Russia could also refuse writedowns.

"The IMF and national authorities should call out the recalcitrant creditors on their irresponsible behavior," Summers wrote.

"If necessary, Ukraine should be prepared to go into default and not meet its obligations, while at the same time the international community should make clear that it will continue to provide support to Kiev."

Summers noted Ukraine's Western-oriented government was implementing long-delayed reforms, and said it was unacceptable that taxpayers' money should be used to repay bondholders.

Ukrainian Finance Minister Natalia Yaresko told Germany's Handelsbatt newspaper that bondholders should share in the burden imposed on German taxpayers.

"The moral, geopolitical, and economic case for the provision of strong support is compelling," Summers said.

"Why not set a precedent that if you lend money at a high spread to a country that is then invaded, you should not expect the world's taxpayers to ensure that you are paid back in full?"

(Reporting by Sujata Rao; Editing by Larry King)