While the United States is set to provide the Ukrainian army with lethal weapons to attack the East of the country, the IMF intends to plunge Ukraine into darker economic conditions.
Ukraine is desperately awaiting the end of negotiations with the International Monetary Fund (IMF). The long conflict with Russia and the flimsy foundations of the economy have placed the country on the brink of bankruptcy.
TheKievgovernmenthopesto seala new ‘aid program’in the coming weeksto provide furtherfundingand an extention to therepayment periodtostabilize its economy.
Kiev financial needs are serious, but it is not easy to close a deal with a country whose borders are at stake and where no one knows what basis can be used to calculate its GDP.
We have all seen what has happened to those European nations that requested rescues and bailouts. We have also seen what has happened to countries that have rejected the debt and who decided to go on their own. While places like Greece, Italy and Spain are suffering due to the austerity programs imposed by its creditors, Iceland, the only country that has stood up to the banking cartel is making a safe recovery.
According to Reuters, the total aid package destined to fill the pockets of Washington’s allies in Ukraine would be around 40,000 million dollars, a figure that is close to the 50,000 million dollars that the country needs, according to George Soros, who is neck deep into the destabilization of the country.
The Fund and Ukraine maintain a standard agreement for 17,000 million dollars in aid, which would be part of the agreement that is being prepared by the Fund. Of this, the IMF has disbursed only 5,000 million dollars.
In the package being negotiated there are also bilateralloans fromthe United States which are worth 2,000million dollars; from the EuropeanUnion worth 2.1 millionand Germany with 500million, amongothers.
Kiev wants to replace his old rescue program by another one which will continue for the next four years, “allowing the country to return to economic growth, restore an adequate level of foreign exchange reserves and ensure sustainable economic and financial stability”, said its Minister of Finance, Natalie Jaresko.
Once the agreement piloted by the IMF is signed, the Government of Kiev will begin “consultations with international holders of sovereign debt,” announced Jaresko in Davos Switzerland. That is, Ukraine will start negotiations with private creditors to seek some kind of restructuring of its debt.
The truth is that the figures in the economy make it unsustainable to maintain the current pattern. According to the central bank, the economy contracted by 10% in 2014. Public debt will reach around 90% of GDP in 2015, more than double that of 2013 and if the east of the country continues to fight for independence, debt will certainly increase by 20%.
“At least some form of debt restructuring will be necessary,” Jarábik argues in a recent analysis. “Our position is that these negotiations will mean lower interest rates and a temporary extension of the maturities of existing debt, rather than a default.
The drain of reserves to defend the hryvnia has reached such a level that the country is on the verge of a balance of payments crisis. The reserves have decreased from 16,000 million in mid-2014 to 7,000 million at the start of 2015 and no one knows where the bulk of the money went.
In these circumstances, the central bank, chaired by Valeria Gontareva, communicated that it was forced to raise interest rates from 14% to 19.5% despite its negative impact on activity and the currency, which accumulates a depreciation of over 50%.
This decision “reinforces the idea of how vulnerable the external position of Ukraine is,” said analyst William Jackson, from the research firm Capital Economics.