Ukraine on verge of default, faces unprecedented financial crisis - experts
25 February 2014, 04:02
While initiating a donor conference, Ukraine has calculated that it will need 35 billion dollars of aid. Ukraine's Finance Ministry and the National Bank of Ukraine have made a proposal to their international partners, to Poland and the US, to offer their country a credit within the upcoming weeks. At the moment Ukraine is on the verge of a financial collapse. The situation is being aggravated by the falling of the national currency. The exchange rate of the Ukrainian hryvnia against the dollar has hit its record. One US dollar is now worth nearly 9.5 hryvnia. And it is not the limit yet.
Financial uncertainty has now been added to Ukraine's political instability. There is no money in the Ukrainian budget, while taxes are practically not adding. Ukraine's economy is now only one step away from a catastrophe. The leader of the parliamentary faction 'Batkivshchyna' Arseniy Yatsenyuk stated this during the session of the conciliatory council of the Verkhovna Rada factions:
'The financial crisis in Ukraine is unprecedented. The national treasury has been looted, and the country has actually become bankrupt.'
Acting Deputy Prime Minister of Ukraine Alexander Vilkul gave instructions to the relevant ministries and state companies to stop all payments, except wages and salaries. The Finance Ministry says that although the situation is difficult, it is still under control. However, the ministry officials are unable to say how much money is in the public purse. Meanwhile, the world rating agencies are downgrading Ukraine's ratings, believing that its default is practically inevitable. Following the previously mentioned ratings, Ukraine's production is falling as well - last month alone its volume decreased by 16 per cent. Economic problems will have a negative impact on the life of ordinary Ukrainians, states Vladimir Nazarov, Deputy Director of the Institute of Social Analysis and Forecasting of the Russian Academy of National Economy and State Service of the President of the Russian Federation.
'Even if everything goes well, ordinary people in Ukraine will face unpleasant economic consequences. Meaning, first of all, the devaluation of savings or inflation. The depreciation of currencies, which is also possible, will have a bad impact on them as well. Ukraine's unemployment rate is very high now, and it is expected to grow. There is nothing positive to expect in Ukraine in the next couple of years.'
The national currency is falling which is making the situation even far more difficult. For a long time the Ukrainian government artificially raised the hryvnia exchange rate, says Sergei Hestanov, the managing director of the Alor Group of Companies. Another thing that mattered here was the difference between the real cost of gas and the cost of gas for the Ukrainian population, which was two times lower than the market price.
'Unfortunately, there is no easy and convenient way to resolve the situation. There will either be a default or government will have to get rid of the fixed hryvnia exchange rate and of low gas prices. And these measures will undoubtedly be very painful for the Ukrainian population as the cost of communal services in Ukraine will grow significantly and will reach the level of prices in Western Europe.'
Searching for money, Kiev plans to hold a big international donor conference with the participation of the European Union (EU, the US, Poland, the International Monetary Fund (IMF), and also other countries and international financial agencies. According to the analysts, the US does not have free money for this purpose at the moment. The IMF credit seems to be the only real thing now. However, it will come with certain restrictions, for instance, reduction of the budget sector employees by one-third and the freezing of wages and pensions. Some days ago the Chairman of the European Parliament Committee on Foreign Affairs Elmar Brok said that the EU is ready to give Ukraine 20 billion dollars.
However, according to media reffering one of the members of European Parliament, the question of providing Ukraine with a loan was not even discussed. 20 billion in seven years in not a loan, it is a total revenue from signing the Association Agreement of Ukraine with the EU and profit from joint investments. According to unofficial information, signing of the document can take place already next month. But this will aggravate the situation in Ukraine even more, says Leonid Gusev, senior researcher at the Institute of International Studies in MGIMO Russia.
'It states there in the final part very clearly that after signing the agreement, the situation in Ukraine might not be very stable. Part of enterprises might be closed, as they will not be able to compete with the incoming European organizations, associations etc. The privatization will take place in favor of the EU, large businesses, capitals and so on. Ukraine has a lot of things: the ports, coal mines, steel mills... All of this can go away.'
The help from Russia has been stopped as well. The decision of providing Ukraine with additional help will be considered only after the creation of new government. If Ukraine can get money from the IMF over the next couple of weeks, it will be able to avoid default, which, according to analysts, will happen only in a matter of time. There is a lot of doubt regarding the solvency of the country since with treasury drop, gold reserves and foreign debt has exceeded $ 137 billion, which is 80% of Ukraine's GDP.
Tatyana Golovanova
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