KIEV - Ukraine and its creditors sharpened their knives for a decisive battle Friday after direct negotiations failed to reach a workable solution for keeping the ex-Soviet country from hurtling into default.
The war-torn country and its biggest commercial lenders ended their second day of meetings at the Franklin Templeton investment giant's headquarters near San Francisco by issuing a two-sentence statement that served up more questions than answers.
"The Ukrainian delegation and the ad hoc creditors' committee held detailed discussions in San Francisco. Talks are on going," the statement said.
One source close to the issue told AFP that no personal meetings between Ukrainian Finance Minister Natalie Jaresko and Templeton's bond managers had been planned for Friday.
"Discussions will continue over the phone," the person said.
A second individual with knowledge of the negotiations said only that "talks will continue" at some level Friday.
Templeton and three other financial titans hold nearly two-thirds of the $15.3 billion (13.7 billion euros) in savings that cash-strapped Ukraine is seeking on its total foreign debt over the coming four years.
The restructuring is a mandatory part of a broader $40 billion global rescue package that the International Mandatory Fund patched together at the start of the year.
But the creditors refuse to accept a major reduction of their bonds' face value and want a proposed maturity extension to expire as soon as Ukraine's imploding economy returns to growth.
Sources said the bondholders have put strict conditions on a possible debt write-down of between five and 10 percent - well off the 40 percent figure originally sought by Kiev.
Jaresko has since submitted a number of counter-proposals whose details remain private but reportedly include a smaller "hair cut" and larger interest payments.
The US-born Ukrainian finance chief has called the California round of discussions "final" and threatened to impose a payment freeze on Eurobond interest and principal payments that come due in the coming weeks.
Growth slump slows
Ukraine has been lurching from one crisis to another since thousands of pro-European demonstrators toppled Kiev's Moscow-backed government in February 2014.
The Western-friendly leadership that rose in its wake lost Crimea to Russian forces a month later and soon confronted a pro-Russian separatist uprising in its industrial east.
The 16-month war has now claimed the lives of more than 6,800 people and thrown Ukraine's already-stagnant economy into paralysis.
The state statistics committee said on Friday that Ukraine's growth slump had slowed to 14.7 percent of gross domestic product in the three months ending in June - a marginal improvement on the 17.2 percent contraction experienced between January and March.
The economy ministry said its most optimistic scenario has Ukraine swinging back into positive GDP territory by the start of next year.
But economists said making forecasts is a risky business in a country that sees periodic - and at times intense - flareups in an eastern revolt continue despite the theoretic existence of a six-month truce accord.
Russia denies any links to the insurgents and officially provides them with only political support at negotiations and UN Security Council debate.
But Ukraine's Western allies accuse Russian President Vladimir Putin of orchestrating and arming the uprising in revenge for Kiev's decision to snap out of Moscow's orbit and anchor its future with the European Union.
The slight reduction in the size of Ukraine's economic contraction was helped by lower military spending that the peace deal briefly afforded.
But US Secretary of State John Kerry called his Russian counterpart Sergei Lavrov on Thursday to express "grave concern" about the increased number of recent separatist attacks.