On March 29, the High Court in London has decided that the sanctity of Eurobond debt trumps Ukraine’s special pleading to treat the Russian $3 billion loan to the late Yanukovych regime as odious debt and wave it away on account of Russia’s supposed “aggression” against it.
This is not the final judgment, which is still a few weeks away, but Ukraine’s chances of winning have now diminished to the purely theoretical.
Once that happens, Ukraine will be found to be in default on its loan to Russia, and since Russia belongs to the Paris Club of major creditor countries, the IMF will be prohibited from any further lending to Ukraine.
At that point, the IMF will have to decide whether it is willing to bend its own rules to continue to lend to Ukraine. On the one hand, Western countries – the United States, the EU countries, and Japan – hold a narrow majority of the voting power in the IMF, so perhaps a pro-Ukrainian decision could be lobbied through.
However, I agree with Alexander Mercouris that this is unlikely. The Ukraine has made zero to negligible progress on combatting corruption, and with the recent transport blockade of the Donbass and the nationalization of Ukrainian enterprises in the LDNR, a huge chunk of Ukraine’s foreign currency earnings are now going to go up in smoke. The IMF decision to forego a planned $1 billion tranche on March 20th cannot augur anything very good for the Ukraine.
At that point, the Ukraine could either comply with the court decision for IMF lending, or it could not.
The former will be politically risky, especially given that Poroshenko’s position now seems to be far more fragile than it was even a few months ago, with the Kolomoysky-Turchinov-Tymoshenko alliance flouting his authority with apparent impunity, from the Donbass blockade to the ejection of Russian banks from Ukraine. The alternative would be to live without the IMF, but could the Ukraine manage that?
The economy, at least until the Donbass blockade, showed signs of finally turning the corner, recently clocking up 4.7% growth by the end of the year (albeit from an extremely depressed base). The loss of the LDNR enterprises means will force the Ukraine to make deeper than planned cuts this year, and will sink its current account deep into the red just as the positive effects from its post-Maidan devaluation begin to wear off. Even in 2015, Ukraine’s government debt to GDP ratio was at 79% – anything over 60% is considered to be the danger zone for emerging economies (Russia defaulted at 75% in 1998) – and it will be worse today. Meanwhile, its war chest of $15 billion in foreign currency reserves, though a great improvement over its nadir at $5 billion in 2015, could drain away rapidly if shorn of IMF support.
The markets agree that the situation is fraught. 5 year credit default swaps for Ukraine are currently at 628 basis points, which implies that the default risk for Ukraine is higher than for any other major country bar Venezuela.
Ukraine, Venezuela “major countries.” You are really cruel to Ukrainian Patriots, Anatoly.
AK says, ” Ukraine is Venezuela with snow.”
I still don’t understand why the average Ukrainian was so happy to hand over their land to the likes that frequent with Soros/McCain/The Economist/etc. This is not 1950 anymore surely most people in Ukraine would be aware that places like France or Britain are rapidly being taken over by third world people, yet they are still willing to sign the Faustian pact to ultimately destroy to their nation to make some extra money. And I repeat this is not 1950, everyone has smartphones now, their actions cannot be blamed on complete ignorance.
As Alexander Mercouris has mentioned, the reason why the war in Luhansk and Donetsk continues is that all the leaders that have come after Maidan support the idea of a monocultural and monolinguistic Ukraine. This is totally at variance with reality and is not caused by far-right militias. Even the Young Master agrees with Mr Mercouris on this matter.
Ultimately, the blame must lie with the Western Ukraine electors. They vote for parties that needlessly prolong a war with no hopeful outcome. In fact, the longer the war, the more likely that ever larger parts of S and E Ukraine will be incorporated into Russia. And ever more likely that the Ukraine will be bankrupt.
Libertardians use Venezuela’s problems as “proof” that socialism doesn’t work. It’s just as valid to use the Ukraine’s economic problems after the Maidan coup as “proof” that capitalism doesn’t work. The junta is more market-oriented, less statist than the previous government.
That would be a valid argument, if you could point to a single country where socialism does work.
That’s easy. Socialism worked in the late USSR. I know it worked because I saw it. A very different kind of socialism worked in pre-immigration Scandinavia.
The IMF has already bent its rules by lending money to Ukraine, a nation at war. Why not do it again?
Ordinary Ukrainians would probably be better off without the IMF, which imposes on austerity on them. The real question is: could the Ukrainian oligarchs make do without the IMF? They’re the ones who ultimately end up with all the IMF money, not the ‘little’ people.
Worked so well that Soviet people at the first opportunity sold socialism for blue jeans, Coca Cola, toilet paper and chewing gum.
Not the Soviet people. Their corrupt leaders, namely Gorbachev and Yeltsin were the ones who sold it. No one asked the people about socialism. There was a referendum about the USSR and a huge majority voted to keep it, yet it was dissolved by politicians anyway. There was no referendum about socialism. I’ve seen polls which showed it being popular with the generations who remember it.
This dishonest “argument” can be used to suggests all kinds of things. If old, ethnically-homogenous France was so great, why did the French sell it to Moroccans and Algerians at the first opportunity? If California of Steve Sailer’s childhood memories was so great, why did Californians give so much of it back to Mexicans? At the first opportunity!
You’re painting the actions of some of the most corrupt people in recent memory anywhere on earth (Yeltsin and the oligarchs) as the will of the people.
Leaders are nothing without followers.
Everyone wanted to be like the West, and everything Western was worshipped like holy relic, including blue jeans and chewing gum. Such were the results of Soviet propaganda about the “rotten capitalism”.
Yes, the people remember socialism fondly, after they found that capitalism does not mean that everyone will live like in Hollywood movie as they were promised.
At the time when socialism was dismantled, how many people protested, except Nina Andreeva?
https://en.wikipedia.org/wiki/Nina_Andreyeva
Yes, the leaders elected and supported by the people, wanted cheap labor, and the people went along. If democracy have any meaning at all, it means that people are responsible for the government they elected.
The logical solution from day 1 was for Ukraine to sell Crimea to Russia. Not that leasing it as a Russian military base was ever much different. Or rather, they had already sold it.
It was clear that the West had never intended to actually fund a Ukrainian reform effort. At a time of maximum outrage over the Russian invasion, the US offered up $1 billion in aid. And the EU had its hands full with GREXIT and the PIIGS.
The youth, obviously, wanted the EU to migrate out of an economic disaster. As far as Russian desire to absorb the country, Ukraine was a customer for its gas. Of course, Russia overcharged and Ukraine chronically underpaid, but it was still a customer. If annexed, it would be simply become an expense and drain on the treasury.
It was always, at its core, a real estate deal. The notion of turning it into a war was stupid. Especially motivated by the West’s pseudo interest in expanding into Ukraine. They hadn’t begun to do anything for Romania or Bulgaria, and were choking on Greece and Italy.
I’m disgusted about the idiocy of that entire period. Russia wanted its Sochi Olympics and pissed away the final windfall of $150 oil to the tune of $50 billion or so. Instead of giving Putin his party, the Western press spent months building it up as a failure and then hauled in every homosexual they could find in their official delegation. And there was constant hand wringing over theoretical security catastrophes which never materialized — never mind the last bomb at an Olympics was in Atlanta.
I’m not suggesting that an inflow of $50 to $100 billion from the West could have fixed Ukraine — but rather that there was never any will to subsidize reform. Ukraine had been reasonably effective at luring both Russia and the EU into competing for the theoretical windfall of privileged access to the Ukrainian market.
But at least Russia thought it was important. For the West, it was just mindless window shopping. It was never serious.
So maybe now it can be settled as a auction. Its all it ever was.
As a suburban homeowner, I always want to have a small yard that backs to a park. Not own the park.
Here is a US, legal based discussion.
http://www.creditslips.org/creditslips/2017/03/ukraines-loss-another-twist-on-a-long-road.html
After Argentina, Ukraine shouldn’t feel very confident. Contract law is more important as a matter of principle then something as vague as the UN Charter which promotes both sovereign borders and self determination.
This will never make it to the Argentina stage. It will be settled as part of the next loan to Ukraine.
As with Greece, Ukraine settling all its debts is essentially a mathematical impossibility and a default is on the cards later, if not sooner. Western donors will drip money in to keep the thing on life support for the time being, but there is no political will for some type of Marshall Plan, like Poroshenko is dreaming about. The funny thing is that those CDSs are a bargain. Welcome to your European future, Ukraine, I hope it was worth all the trouble.
” If democracy has any meaning at all, it means that people are responsible for the government they elected ”
Which brings us back to voters in the Ukraine. They continue mostly to support war parties – in both senses of the term. Such stupidity will result in partition and impoverishment for the rump Ukraine. They have only themselves to blame.
Russia invaded Ukraine. Thereby Russia committed aggression against Ukraine. Plain facts there. Don’t have to be biased against Russia to realize this.