Ukrainian economists: default is inevitable, IMF loans will only delay bankruptcy
On Wednesday, the IMF should decide on the allocation of a new loan to Ukraine. This is the only hope of the Kiev authorities to replenish almost empty coffers. However, Ukrainian economists surveyed by the agency PolitNavigator, consider that the new tranche will only delay the date of the official declaration of default.
Economist Vsevolod Stepanyuk:
Head of the Ukrainian Analytical Center Oleksandr Okhrimenko:
Oleg Ustenko, Executive Director of the International Blazer Foundation:
Economist Vsevolod Stepanyuk:
“The government expects to receive a loan from the IMF in March. Otherwise, the default may be in the near future. In the case of receipt of 10 billion dollars from the IMF and funds from the EU, in the next six months, and even, perhaps, before the winter, Ukraine is not in danger of default. But for this, it is necessary that a truce in the Donbas be observed. These loans will allow to service foreign debt.
Unfortunately, the policy pursued by the government actually kills the economy of Ukraine. All adopted laws are aimed at reducing the economy.
Because of this, in the future, Ukraine will not be able to service large debt obligations, and will not give loans indefinitely. Therefore, I think that there will still be a default - either at the end of this year, or at the beginning of the next.
Of course, it also depends on whether the United States will help, whether the war will stop, etc. If the conflict in Donbas continues to grow into a hot stage before the IMF receives money, the IMF can postpone its assistance. The general rule is that credit is not given to those who fight. Therefore, I think Ukraine went to the Minsk agreements. With the same purpose, the Verkhovna Rada adopted recent laws.
Recently, statements by Ukrainian politicians are less belligerent, but the party of war has not left the government anywhere. The people who actually started this war, its hot stage, are at their posts. Therefore, until the change of power, the conflict in the Donbas will continue. And the sooner honest elections will be held in Ukraine (and not such as the past), the sooner the government changes, the sooner Ukraine will take the path of development. ”
Unfortunately, the policy pursued by the government actually kills the economy of Ukraine. All adopted laws are aimed at reducing the economy.
Because of this, in the future, Ukraine will not be able to service large debt obligations, and will not give loans indefinitely. Therefore, I think that there will still be a default - either at the end of this year, or at the beginning of the next.
Of course, it also depends on whether the United States will help, whether the war will stop, etc. If the conflict in Donbas continues to grow into a hot stage before the IMF receives money, the IMF can postpone its assistance. The general rule is that credit is not given to those who fight. Therefore, I think Ukraine went to the Minsk agreements. With the same purpose, the Verkhovna Rada adopted recent laws.
Recently, statements by Ukrainian politicians are less belligerent, but the party of war has not left the government anywhere. The people who actually started this war, its hot stage, are at their posts. Therefore, until the change of power, the conflict in the Donbas will continue. And the sooner honest elections will be held in Ukraine (and not such as the past), the sooner the government changes, the sooner Ukraine will take the path of development. ”
Head of the Ukrainian Analytical Center Oleksandr Okhrimenko:
“There is already a de facto default, it will not be de jure in the foreseeable future. Nobody will go to that, this is a political question. The Minister of Finance, Mrs. Yaresko, appealed to the holders of Ukrainian bonds with a request to consider the issue of restructuring. This actually means a technical default. We had a IMF stand-by loan program. The fact that it was actually flooded and changed to another - default.
All that we already see - the hryvnia collapse, inflation, unemployment, stopping enterprises, closing banks - this is already a default. We are forced not to live, but to survive. It is terrible that no one is going to do anything in this regard. ”
All that we already see - the hryvnia collapse, inflation, unemployment, stopping enterprises, closing banks - this is already a default. We are forced not to live, but to survive. It is terrible that no one is going to do anything in this regard. ”
Oleg Ustenko, Executive Director of the International Blazer Foundation:
“Now, in the short term, the risk of default has sharply decreased, although until early March, the probability of default in Ukraine was extremely high. It was not clear whether there would be foreign financing in Ukraine, and how far Ukraine was able to service its debts. In 2015, payments on debts are very high, only for state sovereign and quasi-sovereign debt to be paid around 10 billion dollars. The total amount of foreign debt of the private sector, banks and corporations exceeds 100 billion. It is assumed that the Ukrainian private sector should return about 10 billion dollars this year. As gold and foreign exchange reserves fell to 6 billion dollars, it was not clear how Ukraine could make these current payments. It was obvious to everyone, including in foreign markets.
The cost of insurance for risk in work in Ukraine was at the level of 4500 base points. This means that if someone last week wanted to credit the Ukrainian economy with 1 million dollars and guaranteed to get their money back, the insurance of mandatory return of a million dollars would be 450 thousand dollars. In this situation, no one will credit the economy, or the interest rate in foreign currency should be at the level of 50%, which looks incredible for any country in the world.
This was reminiscent of the situation in Greece when it entered a crisis - a sharp increase in risk insurance. In fact, Ukraine in recent days was in such a state.
In the short term, a default would be inevitable if the Verkhovna Rada had not voted for this tough but necessary package of changes in legislation, which made it possible to reduce the deficit of the public finance system from 12% of GDP to 8%.
Therefore, I believe that the risk of default has decreased dramatically (although it has not disappeared) after the last vote.
Next week, the Ukrainian question can be put on the agenda of the IMF board of directors, and the program of cooperation with the IMF can begin. This will mean that the country will be able to receive about 2015 billion in external loans from the EBRD, the World Bank and other financial institutions in 8 year. Obtaining these funds is tied to whether or not there is a program of cooperation with the IMF.
This, again, would have been impossible if the parliament had not voted for these laws.
There are significant risks of default in the medium and long term. They are related to the fact that our previous cooperation programs with the IMF were unsuccessful. Ukraine at some point refused to carry out the necessary but painful measures that she herself had agreed upon when signing a memorandum of cooperation with the IMF. The program has stopped. This was with the 2009 program of the year, with the second program, and with the current one - all of them were suspended. The IMF knows the behavior of Ukraine, it is often burned on this. Voting in the parliament before the meeting of the board of directors indicates that the IMF will not give money in advance. First, change, then money. One more step on the part of Ukraine is more money. This allows us to believe in the relative success of the program at the point of reference in which we are now.
If such cooperation is suspended, the risks of default will begin to grow. It will be if Ukraine does not make the transformations that it should do. If structural reforms are not carried out, the fight against corruption, the reform of the judicial system, the public administration system, business deregulation will not be carried out, then the default risks will begin to grow in that the risks of ceasing cooperation with the IMF and other international financial lenders will increase.
It should also be remembered that a country that borrows money should show economic growth, otherwise the debt burden may be unbearable for a falling economy. In order not only to resume economic growth and grow at a high rate - 7% and above - a country should really implement rapid economic reforms, and not just talk about them. Then it will be possible to focus not on loans, but on investments.
In addition, although the state’s default risks have sharply decreased today, the risks of the Ukrainian private sector remain high. Companies are to negotiate restructuring of their debts. I would not expect success with all representatives of the Ukrainian corporate sector and the banking system in terms of restructuring their debts. Many have very poor results in the past and this year. First of all, this applies to banks. Therefore, I would not rule out a series of corporate defaults on external liabilities. It is quite likely.
Recently, the Ukrainian government initiated negotiations to restructure a part of our foreign debt. First of all, we are talking about our Eurobonds, the total amount of which in the external market is 17,5 billion dollars. We must understand that this kind of restructuring is, of course, not a default in the classical sense, but this means a technical default. ”
The cost of insurance for risk in work in Ukraine was at the level of 4500 base points. This means that if someone last week wanted to credit the Ukrainian economy with 1 million dollars and guaranteed to get their money back, the insurance of mandatory return of a million dollars would be 450 thousand dollars. In this situation, no one will credit the economy, or the interest rate in foreign currency should be at the level of 50%, which looks incredible for any country in the world.
This was reminiscent of the situation in Greece when it entered a crisis - a sharp increase in risk insurance. In fact, Ukraine in recent days was in such a state.
In the short term, a default would be inevitable if the Verkhovna Rada had not voted for this tough but necessary package of changes in legislation, which made it possible to reduce the deficit of the public finance system from 12% of GDP to 8%.
Therefore, I believe that the risk of default has decreased dramatically (although it has not disappeared) after the last vote.
Next week, the Ukrainian question can be put on the agenda of the IMF board of directors, and the program of cooperation with the IMF can begin. This will mean that the country will be able to receive about 2015 billion in external loans from the EBRD, the World Bank and other financial institutions in 8 year. Obtaining these funds is tied to whether or not there is a program of cooperation with the IMF.
This, again, would have been impossible if the parliament had not voted for these laws.
There are significant risks of default in the medium and long term. They are related to the fact that our previous cooperation programs with the IMF were unsuccessful. Ukraine at some point refused to carry out the necessary but painful measures that she herself had agreed upon when signing a memorandum of cooperation with the IMF. The program has stopped. This was with the 2009 program of the year, with the second program, and with the current one - all of them were suspended. The IMF knows the behavior of Ukraine, it is often burned on this. Voting in the parliament before the meeting of the board of directors indicates that the IMF will not give money in advance. First, change, then money. One more step on the part of Ukraine is more money. This allows us to believe in the relative success of the program at the point of reference in which we are now.
If such cooperation is suspended, the risks of default will begin to grow. It will be if Ukraine does not make the transformations that it should do. If structural reforms are not carried out, the fight against corruption, the reform of the judicial system, the public administration system, business deregulation will not be carried out, then the default risks will begin to grow in that the risks of ceasing cooperation with the IMF and other international financial lenders will increase.
It should also be remembered that a country that borrows money should show economic growth, otherwise the debt burden may be unbearable for a falling economy. In order not only to resume economic growth and grow at a high rate - 7% and above - a country should really implement rapid economic reforms, and not just talk about them. Then it will be possible to focus not on loans, but on investments.
In addition, although the state’s default risks have sharply decreased today, the risks of the Ukrainian private sector remain high. Companies are to negotiate restructuring of their debts. I would not expect success with all representatives of the Ukrainian corporate sector and the banking system in terms of restructuring their debts. Many have very poor results in the past and this year. First of all, this applies to banks. Therefore, I would not rule out a series of corporate defaults on external liabilities. It is quite likely.
Recently, the Ukrainian government initiated negotiations to restructure a part of our foreign debt. First of all, we are talking about our Eurobonds, the total amount of which in the external market is 17,5 billion dollars. We must understand that this kind of restructuring is, of course, not a default in the classical sense, but this means a technical default. ”
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