No Matter What Happens In The East, Ukraine Is Going To Default
Much attention is understandably being paid to Russia’s provocative actions in Eastern Ukraine, where Moscow-linked separatists have occupied government buildings and announced the creation of independent “people’s republics.” While there wasn’t much enthusiasm for the Euromaidan in Kharkov, Lugansk, and Donetsk it seems fairly obvious that the violent unrest of the past several weeks is the deliberate creation of Moscow, which is doing its very best to stir up trouble both to weaken the new government in Kiev and to give itself a pretext for military intervention should it be deemed necessary.
Despite some bold proclamations by American intelligence officials, who appear to have already forgotten how badly they misread Russia’s intentions in Crimea, no one really knows what’s going to happen in Eastern Ukraine. At this point it unfortunately would not shock me if the Russians sent in troops (if you’re still shocked by anything the Russians do you haven’t been paying attention) but there’s still a real possibility that things don’t devolve into an all-out war.
But even if the situation in Eastern Ukraine doesn’t entirely spin out of control, the country’s economy has already unraveled to the point that a substantial default is now essentially unavoidable. Moody's recently downgraded Ukraine‘s sovereign debt from ”extremely speculative” to “default imminent with little prospect for recovery.” Moody’s based its decision not just on the escalating political crisis, but on Ukraine’s rapidly dwindling foreign currency reserves, its exploding level of debt (from 40% of GDP at the end of 2013 to a projected level of 60% at the end of 2014), and full-year 2014 economic growth that is optimistically forecast to be somewhere between -3 and -4%. Although the new government in Kiev isn’t to blame for the economic carnage now transpiring, the fact that Yanukovych and his cronies were responsible doesn’t do anything to change the reality of the situation: whether we like it or not, Ukraine is in economic free fall.
Given everything that’s going wrong with Ukraine’s economy, there’s very little chance that the IMF bailout will prove large enough to allow the country to pay all of its bills. And while it’s fair to say that Ukraine didn’t have any other options on the table, the new government obviously wasn’t going to accept Russia’s aid package, as Alec Luhn notes at The Nation the IMF conditions for Ukraine won’t include any debt relief and won’t impose any haircuts on the country’s creditors. Even with substantial international assistance, Ukraine is going to owe a lot of money to a lot of different people and it isn’t going to have the means necessary to pay this money back.
http://www.forbes.com/sites/markadomanis/2014/04/09/no-matter-what-happens-in-the-east-ukraine-is-going-to-default/
= new reply since forum marked as read
