12 July, 2013 10:31 ▪
The government’s pocket banks and companies may get 30-50% discounts to buy promissory notes
According to the author, the law on promissory notes parliament adopted recently is not specific, therefore the government gets almost unlimited power to decide which of its accounts payable it should cover, when and who will get the pay.
When choosing between the prospects of getting nothing or the getting promissory notes that can hypothetically be exchanged for cash at an intermediary with a discount, entrepreneurs would reasonably prefer the second option, the article says. Given the previous experience, entrepreneurs will likely be hinted at which banks they can convert their promissory notes into cash, and the owners of these banks may incidentally turn out to be close to those in power. They are more likely to be paid the nominal value of the promissory notes from the state budget.
READ ALSO: The Bond Game
Experts project that the government’s pocket or close banks and companies will purchase the notes with a discount ranging from 30% to 50%.
This scheme is nothing but legalization of massive kickbacks in VAT reimbursement to entrepreneurs. The latter will thus cover the government’s debt liabilities indirectly, the article writes.
According to experts, initial discounts for VAT-reimbursement promissory notes may exceed 50%. “This is trivial business in our system” the author concludes.
On July 4, the Verkhovna Rada adopted the law to restructure budget debt through financial promissory notes. 246 MPs supported the initiative, including 198 from the Party of Regions, 1 from Batkivshchyna, 29 Communists and 18 independent MPs.
This allows the Cabinet of Ministers to restructure the actual budget debt that has emerged since January 1, 2013, with promissory notes.
- Ukraine’s gross external debt falls by USD 4.7bn
- Ukraine repays USD 1bn of public debt
- The Wall Street Journal: EU's Ashton to Discuss Ukraine with IMF Chief
- FT: West had been ready to loan Kiev €20bn
- Financial Times: Franklin Templeton takes $5bn Ukraine debt gamble
- Goldman Sachs: financial problems may push Ukraine to agree IMF loan till September
- Timothy Ash: Ukrainian government should quickly lock in external financing, either from the Russians or from IMF