The frank reports of foreign bankers about a possible financial crash are not any new to us already.
Research department supervisor of the MFK Renaissance Investment Bank Charlie Sanders said the country is facing a new financial crisis. The state debt is the major Ukrainian problem. According to Sanders, it is too big and too expensive: the debt on domestic bonds is $4.5 billion and has to be paid off in nine months. And this is only a part of the problem. Ukrainian foreign debt totals an incredible $12 billion (in 1994, before the presidential elections it was $450 million) and it has to be paid off within seven years with interest. Sanders said that life is hard for a country, which borrows money at 15% annually, when others can borrow at 6-9%.
Thank you, we already knew that. We also know that no matter what high officials say, the government uses the loans it attracts to solve temporary problems and not to launch economic reforms. Of course, why would the constantly changing government think of what will happen with country in ten years, when someone else might replace them in six months? This is why they are in a rush and do not care much about what will happen after they retire.
Predictions of the ex-deputy Minister of Economics Serhiy Teriokhin are also very interesting. He said that the hryvnia exchange rate might fall to Hr 2.2 per dollar by the end of June. Moreover, the hryvnia’s fall will cause another rise in interest rates (now at 51%) and increase the money mass (Hr 0.5-2 billion), which will be emitted by the NBU to purchase domestic bonds on the primary market and support the rates on the secondary market. In other words, money will get more expensive. The commercial banks will also raise their interest rates. Then say goodbye to the economy’s private sector, domestic manufacturing, and investors.
Late last week NBU head Viktor Yushchenko said that measures worked out by the National Bank in cooperation with the Ministry of Finance give grounds to state that the domestic bonds payment peak in June can be successfully weathered. But maybe not. According to an officially unconfirmed report from Interfax-Ukraine, NBU head stated that on May 29 NBU will issue bonds with a two month maturity. And one may doubt that non-residents will reinvest their money after that. This is why the NBU is ready to support the Finance Ministry “by refinancing debt payments.” The Finance Ministry has conducted preliminary talks on opportunities of immediate attracting external financing.
But the IMF mission visit in June plays the most important role in this begging-for-money march. IMF Executive Director Michel Camdessus, according to Yushchenko, will make clear Ukraine’s chances to receive the EFF loan.
The Cabinet of Ministers has already begun preparing for the visit to demonstrate that Ukraine kept its promises. The government has been going through a draft law On Changes and Amendments to the Law of Ukraine On the 1998 State Budget over and over again. This draft budget stipulates reduction of the deficit to 2.5% of GDP. For this purpose it is essential to decrease expenditures by Hr 3.3 billion, which has now actually been done. According to the Finance Ministry, education, social security, healthcare, fundamental research, and Chornobyl funds will be cut. The NBU head said some time ago that the decision to reduce the budget deficit shows “a real government intention to reduce the hazards of devaluation and inflation.” As we see, the government does not want to pay for education and medical treatment for Ukrainian children, and it would be interesting to know what Mrs. Kuchma thinks about it.
But let’s go back to the huge external debt. According to Yushchenko, the new draft budget stipulates financing of the deficit at the expense of the foreign sources. Hr 1.8 billion are needed for this very purpose. The Finance Minister also thinks “Ukraine enter the foreign credit market in the immediate future,” which means another debt rise.
Thus is the heritage (if not worse) a new President will receive next year.






