Ukraine "On Verge of Financial Bankruptcy" Reaches $27 Billion "Kamikaze" Deal With IMF

Ukraine and the IMF have agreed to an aid package that will no doubt prove to be as beneficial to Ukraine as the Troika bailout (plunder) of Greece.

Bloomberg reports Ukraine Unlocks $27 Billion International Aid Deal.

Ukraine reached a preliminary deal with the International Monetary Fund to unlock $27 billion in international aid as U.S. lawmakers passed bills imposing more sanctions on Russians linked to Crimea’s annexation.

The government in Kiev reached a staff-level accord with the IMF for a two-year loan of $14 billion to $18 billion, the lender said today in an e-mailed statement. The IMF’s board must still sign off on the package, Ukraine’s third since 2008, and the cabinet must complete “prior actions” to receive the first installment as early as April.

Ukraine’s government, which came to power after an uprising ousted President Viktor Yanukovych last month, is grappling with an economy threatening to slide into a third recession in six years, dwindling reserves and a weakening currency. Ukrainian asset prices have also suffered as Russia’s takeover of the Black Sea Crimean peninsula sparked European and U.S. sanctions and rekindled memories of the Cold War.

“The IMF package should be sufficient to prevent the country falling into a full-blown balance-of-payments crisis,” London-based Capital Economics Ltd. said in an e-mailed note. “But the volatile political situation and Ukraine’s poor track record in implementing reforms demanded by the fund mean that there will still be many doubts about whether politicians will be able to push substantial changes through.” 

As part of the IMF agreement, Ukraine agreed to narrow the budget deficit to 2.5 percent of gross domestic product by 2016 and to raise retail energy tariffs toward their full cost, according to the Washington-based lender. The central bank will shift to a flexible exchange rate and inflation targeting, while the nation will tackle bad debts at banks, it said.

Lawmakers in Kiev approved budget changes and a tax bill today needed for the IMF loan deal.

‘Very Unpopular’

“The country is on the edge of economic and financial bankruptcy,” Prime Minister Arseniy Yatsenyuk said today in Kiev. “This package of laws is very unpopular, very difficult, very tough. Reforms that should have been done in the past 20 years.”

After being voted in by lawmakers last month, Yatsenyuk described his task as a “kamikaze” mission, saying Ukraine is in a “great mess” with an empty treasury and foreign-currency reserves that have been “robbed.” GDP will shrink 3 percent in 2014 and inflation may be as high as 14 percent, he said today.

"Kamikaze" Mission

Kamikaze mission is an apt description. As with Greece, this bailout deal will not help Ukraine much. Of course, the goal is not really to help the country receiving the alleged "aid", but rather to help creditors get their money back, regardless of how much the aid recipient suffers in the process.

Hryvnia vs. US Dollar



It will be interesting to see what happens to the Ukrainian hryvnia, once again nearing a record low. The hryvnia fell from 8.2 to the dollar, to 11.2 to the dollar. That's a decline of 26.8% this year.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com