How Ukraine is going to avoid default

The Russian leadership has repeatedly stated that they were going to demand from Ukraine ahead of schedule to pay off a loan of $ 3 billion, which Kyiv received last winter, even under President Yanukovych. This was said by Dmitry Medvedev at the Gaidar Forum, and Minister of Finance Siluanov, and simply "unnamed sources in the Russian government." The fact that such a requirement from the Russian side has not yet been received, said the Minister of Finance of Ukraine Natalia Yaresko, and nevertheless, this topic began to be actively discussed in the Ukrainian media.

Formally, the reason for early repayment of the loan may be that Ukrainian state debt exceeded 60% of GDP. According to the conditions for the provision of a loan, this threshold could not exceed. And although the state of the Ukrainian economy does not inspire optimism, in Kyiv no one doubts that the motive of the debt blackmail is exclusively political. If only because having demanded to repay the debt ahead of schedule, Moscow may not be counted borrowed money - in this case, with a high degree of probability, Ukraine will have to declare a default.

Free fall

In general, without the prospect of paying a Russian loan ahead of time, the solvency of the Ukrainian economy is in a deplorable state. In 2014, the GDP of Ukraine became less than one tenth, the hryvnia rate to the dollar doubled, and inflation exceeded 25%. And in the near future the situation is unlikely to change for the better. In total, according to Ukrainian Prime Minister Arseniy Yatsenyuk, Ukraine in 2015 will have to pay $ 11 billion external debts. At the same time, according to the World Bank, this year the Ukrainian economy will continue to fall and will be reduced by another 2.3%. By the beginning of the year, the gold and foreign exchange reserves of Ukraine amounted to $ 7.5 billion - this is even lower than February 2004. Over the past year, the volume of reserves has decreased almost three times: as of January 1, 2014, it amounted to $ 20.4 billion.

Thus, Ukraine is not able to independently cope with its problems. Money is not enough not only to pay debts, but also to just balance the budget. Formally, the budget deficit in 2015 will amount to 63.7 billion hryvnias - it seems that there are not so many, only 3.7% of GDP. But in reality, this figure is much larger. If we take into account the deficiency of the state company NAK Naftogaz, funds for the recapitalization of banks and the deposit guarantee fund, then we can say that the state will have to close a hole in the amount of about 10% of GDP this year.

The only way to make up for the shortage for Ukraine is now the financial assistance of the West remains, for which, according to the Ukrainian authorities, everything possible and impossible is being done. The calculations of Financial Times reported that Ukraine will additionally need $ 12 billion to $ 15 billion of external financing. It is worth considering that this money is an addition to an approved package of $ 17 billion from the IMF and $ 10 billion from other donors. The Economist is sure that funds are needed even more - about $ 20 billion.

The Ukrainian government is clearly counting on additional injections. And although this is not yet mentioned openly, a number of statements make it clear that Kyiv has already clearly formulated the corresponding request to its Western partners. In an interview with Deutsche Welle, the Ukrainian Minister of Economic Development and Trade Aivaras Abromavichus said that the Financial Times calculations are correct - it is additional Ukraine that needs $ 15 billion. Without this, the minister will not be able to stabilize the situation.

In search of money

In the West, new injections are already promised, but so far the announced amounts are clearly not reached to the volumes necessary for the Ukrainian economy. In early January, it became known that the European Union is preparing an additional package of financial assistance, which can amount to about 1.8 billion euros. The European Commission can make a decision on a new loan over the next two months. Additionally, Ukraine will receive state guarantees for loans with a size of 500 million euros from Germany, as well as $ 1 billion from the United States. In case of successful reforms, Washington is ready to provide state guarantees by another $ 1 billion. But in the amount of this, it is still not enough to close the hole in Ukrainian finances.

It is not surprising that financial assistance to Ukraine has become for Western leaders the same important topic as the continuation of hostilities in the Donbass. The message about the telephone conversations held on January 15 between Barack Obama and the angel Merkel on the White House website primarily mentioned the support of the “significant international financial package” for Ukraine. Below in the text it was about "concern for the growth of violence by separatists in the east of Ukraine."

It is difficult to talk about whether in the West to find additional billions in the West. However, billionaire George Soros is sure that Ukraine needs to be saved at all costs - it not only actively campaigning for an additional package of helping Kyiv, but also tells where the missing funds could be drawn. In his article for The New York Review of Books, he says that the European Union could attract its own funds for this, which were used to save the eurozone and support the payment balance of other EU countries in the midst of a durable crisis - according to Soros, more than $ 60 billion of unused funds were accumulated. The IMF could expand the time frame of its program, and the bonds of the European Investment Bank can bring an additional 10 billion euros.

In parallel, Soros conducts active activities in Ukraine itself - last week he visited Kyiv, where he met with President Poroshenko, deputies and public figures. How successful the efforts of Soros will largely depend on the Ukrainians themselves. Not only a billionaire, but all Western leaders do not get tired of repeating that Kyiv will receive money in only one case - if he demonstrates the will to real reforms in a bureaucratic and corrupt country.

While Prime Minister Yatsenyuk explains the wires in conducting vital changes in military operations, and Angel Merkel praises the Ukrainian government for the adoption of the budget before the end of last year, many experts prefer to realistically look at the prospects of Ukrainian reforms. Both Soros and a number of Ukrainian economists have not yet seen a decisive application in the new budget to carry out all the measures necessary for saving the Ukrainian economy.

For example, wires with an increase in gas prices for the population lead to the fact that Naftogaz deficiency is actually covered by the emission of hryvnias with its inevitable subsequent depreciation, and this reduces the half -raising tariffs to nothing. Ukraine buys gas abroad for dollars, and Ukrainians pay for it with hryvnias. So such half measures turn the torment of Ukrainians into a vicious circle - they are forced to simultaneously observe the fall of the hryvnia and increase tariffs.

The government intends to make a number of amendments to the main financial document of Ukraine until February 15 - they will be agreed with representatives of the IMF, whose mission began its work in Ukraine on January 8. Nevertheless, in order to avoid a financial disaster, Kyiv has less and less time. Judging by the fall of the quotations of Ukrainian debt obligations, the belief in the successful salvation of Ukrainian finance among investors is extremely weak. That is why more and more often you can hear the voice of specialists who recommend preparing for default not only to customers of securities, but also to the Ukrainian government, and with it to ordinary Ukrainians.