The Day was informed by reliable sources that the Finance Ministry
is getting ready to restructure its domestic government bond liabilities,
acting on Cabinet instructions, to the detriment of their credulous holders,
Ukrainian businesses and private citizens.
The reader ought to be reminded that the bond restructuring idea first
appeared in the Cabinet when it became clear that the state debt market
had given up the ghost as such, in other words, when the authorities realized
they could no longer get new credit to cover old debts, on either the domestic
or foreign markets. Ukrainian banks were the first to fall prey to voluntary-coercive
restructuring, followed by foreign investors, albeit on better terms. Last
week the government was rewarded for this resourcefulness, receiving 63%
(so far) of the International Monetary Fund's long-awaited loan.
Obviously inspired by this consolation prize (the IMF refers to the
restructuring as foreign investors' participation in financing the EFF
program), the Cabinet thought it necessary to concentrate on "unorganized"
domestic bondholders, although on this particular occasion the campaign
is to be carried out without frills. While banks and nonresidents were
entitled to make voluntary decisions, and negotiations were conducted in
every case, rank-and-file businesses and people are in for altogether different
treatment.
Government bureaucrats now demand detailed information from banks, concerning
domestic government bondholders as enterprises and citizens (contrary to
the universally accepted rules of bank secrecy). In the next phase such
investors will be exposed to a severe pressure using all the familiar police
state tactics, ranging for persuasion (we've made a deal with all the rest,
so what's wrong with you?) to compromising documents followed by appropriate
administrative sanctions (all those thousands of Interior Ministry and
secret police agents never have salary arrears, so they do their best).
To what conclusions should one come in witnessing all this Cabinet activity?
One, this government is not to be trusted, because deceit is a major tool
of its trade. Two, this government, in pursuit of its institutional ends,
is prepared not only to bypass the law but even use law enforcement authorities
to do it (contrary to their duty to uphold the law). Three, considering
that the secondary domestic government bond market now exists owing solely
to the unstructured part of the debt, being a guarantee of the revival
(in 3-4 months) of the primary debt market, from which the rich and the
famous expect to skim over one billion hryvnias next year, it is safe to
assume that the investors, after being duped yet again, will know better
next time, so nothing will happen as the Cabinet expects. Four, the refusal
to redeem debts to enterprises and people, both being bank clients, will
further undermine people's confidence in the bank system (which is tantamount
to its general bankruptcy). Five and lastly, the final IMF tranche was
granted only because the investors met the government halfway, since there
is still no political will for reform in Ukraine. Thus, if the Cabinet
tries to snooker its main donor (and the latter is fully informed), this
IMF gift may well turn out the last.






