December 10, 2013
Guest blog post, sent in by Stive Griffing.
At the present time Ukraine is in the world limelight. The specific character of the present situation is that the country happened to be at a crossroads of external economic and political vectors. Decision making concerning the line of further development by the country occupying exceeding territory in the heart of Europe with a population of 45 million people is a matter of great importance not only for Ukrainians but for the whole world.
Finally defined its strategic choice, Ukraine faced serious difficulties. On the one hand, it suffers from aggravated domestic economic situation against the background of the global financial crisis and the slowdown in global economy recovery, on the other hand – Ukraine is subject to political and economic pressure from Russia. So, the situation is dramatized. The country is unable to manage with ensuring stability of the financial system. In this regard, Ukraine needs to attract foreign financial resources ever more pressingly than ever before. Recent events corroborates that Russia, irritated by European aspirations of Ukraine, skillfully uses the uncertainty surrounding the renewal of cooperation between international financial institutions and shatter to the maximum the difficult economic situation in the country.
For the purpose to achieve its European integration goals, Kiev essentially needs to attract credit resources of independent international financial institutions. Country leaders are actively seeking such opportunities in various areas. As a result, Ukraine is in a high need to renew cooperation with the IMF on stand-by program. Opening a new credit line will allow Kiev to reduce economic dependence from Russia, as well as decrease the consequences of “trade” and “gas” wars initiated by Russia.
The IMF may support Ukraine at the first stage to absorb a strike from close of Customs Union’s markets. The IMF loan will improve the economic situation in the country supporting financial system. So, such lending a helping hand will show the important signal to other foreign investors.
It is necessary to identify another important aspect. Renewal of cooperation with the IMF will allow Ukraine not to seek other opportunities to attract credit resources from potential borrowers such as the state banking institutions in Russia, which, accordingly, will reduce the influence of the Russian capital on the Ukrainian economy. From a geopolitical point of view, it would be beneficial for both Europe and the U.S. Otherwise, Ukraine may become dependent on the Russian leaders’ imperial ambitions.
Until now Ukraine has managed to maintain the image of fair borrower and Kiev has performed all payments for credits without problems or lags. Altogether, during the period of 21 year of cooperation, the IMF has allocated $ 19.07 billion to Ukraine and has already got back $ 15.27
billion, accounting for 80% of total borrowings. Positive history of the IMF’s loan repayment in the context of further negotiations may be underlined as one of the significant arguments in favor of Ukraine.
However, if negotiations will not achieve a reasonable compromise on the terms of the next loan in December in Kiev, it is likely that chance of partial or complete default will rise significantly, which in its turn endanger payments from previous tranches. As is known, Ukraine will have to pay $ 8.2 billion on external borrowing next year, at a level of reserves of 20.6 billion at the end of October 2014. Without external assistance, on the background of an acute deficit it might not cope with such payments.
Thus, considering the whole range of issues and their policy implications, it is clear that, if the satraps and the top managers of the International Monetary Fund continue to maintain their critical stance towards relief in some credit terms, it should be expected an exacerbation of economic crisis in many European countries. International financial institutions and influential multinational companies that have invested heavily in the financial market of Ukraine, in the event of crisis and inability to service external debt of Ukraine (both sovereign and corporate) may suffer serious losses.
In this situation, a refusal to cooperate with Ukraine will undermine the credibility of the IMF as an institution of modernization of economics of underdeveloped countries and cause irreparable damage to his reputation.
The lack of clear signals from the Fund’s management about the possibility of reaching a reasonable compromise in the negotiations with Kiev endangers Ukrainian people’s choice, who demonstrated their commitment to the values of European civilization. Rigidity and intransigence of IMF only increased the imperial ambitions of the Kremlin. It will inevitably resulted in the weakening of the EU and the U.S. positions which has already in a difficult situation due to a failure in solving Syrian issue and revelations of former NSA employee Edward Snowden.Blogactiv Team