The escalating crisis in Ukraine has prompted the United States and Europe to impose the toughest economic sanctions against Russia since the end of the Cold War. Continued instability and military conflict in eastern Ukraine are straining Ukrainian finances. Despite a generous international support package, the government faces shrinking revenues, rising costs, and a spike in foreign debt payments over the next two years.
A single measure can free up $3 billion for Ukraine and send a powerful message to Russia: The United Kingdom can refuse to enforce English-law contracts for the money Russia lent former Ukrainian resident Yanukovych late last year. Ukraine could then walk away from this debt without the usual legal and market consequences of repudiation. Such debt sanctions would reinforce the financial, energy, and trade sanctions under way, and by themselves would represent an appropriately targeted response to the conflict. They would be in line with international law and legislative precedent in the United Kingdom and Europe, most recently used for Iraq and the poorest countries—and would, uniquely among sanctions tools, offer financial relief for Ukraine.