World expects Ukraine’s default

The resumption of natural gas shipments, which was obviously good news for Ukraine , were quickly changed with bad news about the nation’s possible default. This conclusion comes from the report of US financial experts about the global state of economic affairs. In accordance with the report, Ukraine has the worst economic situation in the world.

Photo: World expects Ukraine’s default

Ukraine has been losing investor confidence speedily lately. The country has become the world leader in terms of the industrial setback, the upturn in inflation, the devaluation of the national currency and the fall of the stock market. The forecast for 2009 is rather gloomy: the economic growth will slow down to 2.1 percent, the unemployment will double to 6.4 percent, the inflation rate will remain on the level of 2008, whereas the GDP will become negative, UN experts believe.

The soaring growth of the yield of the Ukrainian state bonds, the volume of which totals $105 billion, testifies to a high probability of default too. The bond yield has increased to 30 percent during the recent four months. For comparison, the yield of the Russian state bonds made up 10.8 percent prior to the 1998 default. In addition, the prices on bond default insurance have had a tenfold increase in 2008.

A mission of the International Monetary Fund has arrived in Kiev to see how Ukraine spends its loans. The experts’ basic goal is to revise the credit program. It is not ruled out that the IMF will freeze credit tranches to Ukraine as a result of the inspection. Ukraine raised a 16.5 billion-dollar loan from the IMF and already received the first tranche of $4 billion.

Nigel Rendell, RBC Capital emerging market strategist, said that Ukraine could declare default despite the IMF’s help. IMF experts said that Russia raised a three-billion-dollar loan ten years ago too and declared default three weeks later.

Unlike UN and IMF specialist, Ukrainian experts are more optimistic in their forecasts. They say that Ukraine will have to make major payments on the state debt in 2010-2011, which means that the nation has some time in store. The share of the Ukrainian state debt makes up only 12 percent of the GDP, which is a lot lower than of other countries with the same credit rating. Nevertheless, the corporate debt of Ukrainian enterprises totals $30-40 billion. It will be much more difficult to pay it back. To crown it all, the Ukrainian currency has lost 35 percent of its value since September, which made the debt servicing a lot more expensive.

“Ukraine’s gold and currency reserves allow us to look into the future with careful optimism. On the other hand, it is clear that the situation is rather complicated, and the problems, which appeared in the economies of Latin American countries before the default, appear in our economy now too,” Igor Burakovsky, the director of the Ukrainian Institute for Economic Research and Political Consultations said.

Ukrainian analysts also believe that UN experts tend to paint the devil blacker than he is because of the political crisis in the country.

Utro