Ukraine has rejected Russia’s proposal to restructure Kiev’s debt that was seen as key to resolving the long debate and avoiding a legal battle.

      Earlier, Moscow proposed that its neighbor repay $1 billion of its debt each year from 2016 to 2018, and be freed from all payments this year.

      It marked a shift to the previous stance when Russia demanded that all of the debt should be returned in December.

      Moscow’s new offer was welcomed by the IMF, which is supporting Ukraine with a $17.5 billion lending program.

      Ukraine’s PM Arseny Yatsenyuk insists Moscow should accept a 20 percent haircut on the principal debt and delay payments by four years, a condition agreed to by other private creditors.

      Moscow is adamant the debt should be classified as sovereign debt and considered outside the arrangement reached by Ukraine with a group of private lenders.

      Moscow bought a bond issue worth $3 billion in 2013 in what is says was an attempt to support Ukraine’s faltering economy.