IMF chief Christine Lagarde said in an open letter to the financial community that the the bailout fund was standing by. Lagarde said that the National Bank of Ukraine (NBU) cannot be counted on to use its reserves to pay for interest on bonds. Most emerging markets keep foreign reserves in order to lower credit risk. Lenders often use reserves as a gauge to a government’s ability to service its debt.

“The NBU’s international reserves cannot be used for sovereign debt service without the government incurring new debt,” she said in a statement to the market. “Ukraine’s debt repayment capacity is limited by its fiscal capacity. Since Ukraine lacks the resources under the program to fully service its debts…in the event that a negotiated settlement with private creditors is not reached and the country determines that it cannot service its debt, the Fund can lend to Ukraine.”

In other words, IMF member states will help Ukraine pay emerging market bond fund managers and banks. They will undoubtedly receive a haircut on the principal amount.

Ukraine owes the IMF $18 billion over the next four years. Defaulting on the its debts will plug the $15 billion hole in the funding the IMF is providing Ukraine.