Ukraine on the Edge of Financial Isolation

This pessimistic conclusion was made by American investment bank JPMorgan

As Ukrainian news agencies reported, American investment bank JPMorgan reduced the forecast for Ukrainian eurobonds from marketweight to underweight level. The forecast was reduced in connection with the worsening of political and economic situation in the country.

This was said in the report of the bank about the situation with developing markets in Ukraine. The report was called “International Isolation and Fiscal Imprudence.” The report particularly says that Ukraine might find itself in the international isolation for a certain period of time. According to JPMorgan, Ukrainian President Leonid Kuchma is charged with authorizing the arms sales to Iraq. This might mean the end of the bilateral and multilateral help.

Furthermore, the bank set out a proposition that Leonid Kuchma would most likely keep his position, although he is attacked and criticized on a daily basis. The report from the bank mentions street actions of protests, arms deliveries to Iraq. Yet, the report mentions that the parliamentary opposition is quite separated. JPMorgan believes that the doubts of the international community regarding Ukraine and its political problems were not going to vanish in the nearest future.

As far as Ukraine’s economic perspectives are concerned, the report of the investment bank says that the measures of the Ukrainian government are artificial and unreliable. The experts of the American bank think that several problems connected with the execution of the budget can be delayed for the next year. They also added that Ukraine’s hopes concerning the profit from the privatization were way too much optimistic. JPMorgan believes that the fiscal problems of the current year might force the Ukrainian government delay some of the budget spending for the next year. In this connection the bank expects that the Ukrainian government will raise more home and foreign loans, than was actually expected.

The Ukrainian parliament gave the first reading to the draft budget of the country for 2003. The revenues of the budget were increased from eight to 55 million hryvnas (Ukrainian currency) at the expense of the privatization profit. Furthermore, Ukrainian eurobonds are more expensive than Russian state and corporate bonds. This makes Ukrainian bonds not really attractive. The Ukrainian financial company Sokrat said that the fall of prices of Ukrainian eurobonds would be faster now, after investors got such an explanation from a respectable bank. The company stressed out that it would be unreal to wait for any good in the nearest future. Until recently, Ukraine has been duly paying its eurobond interest.

Alexander Gorobets PRAVDA.Ru

Translated by Dmitry Sudakov