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22 July, 2013 16:32   ▪  

Expert: Ukrainian government is pushing the economy back to the USSR

The Ukrainian government may announce a default in Q4’2013 or later because it will not be able to pay its debt liabilities on a timely basis, comments Volodymyr Lanovyi, President of the Centre for Market Reforms

Western experts project this given Ukraine’s significant debts, Lanovyi claims.

“Ukraine may announce a default at the end of this year because it will not be able to pay its liabilities. The West expects this. Of course, the government may avert this by throwing some huge object for privatization and gaining a few billion dollars. If that happens, the default may occur sometime later. However, even the sale of huge objects will not bring sufficient revenues to cover the accumulated debt,” Lanovyi says.

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This year, Ukraine has to pay nearly USD 30bn of internal and external debt liabilities. “The government has been paying its current liabilities with loans for the past few months. Thus, the debt is growing and the government is more likely to have no money to cover its debts,” he explains. Respectively, this situation affects investment flow to Ukraine, the expert notes. 

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“Of course, investors have turned away from Ukraine. The West is growing more and more critical in its expectations, and in practice we are witnessing capital outflow from Ukraine. The outflow of investors has become a one-sided process, while new investors are mostly representatives of Ukrainian owners masked behind offshore foreign companies,” Lanovyi comments.

“Investors won’t come back. There is no hope for that. We are going back to a centralized Soviet-type command economy. As you know, foreign investors barely came to the Soviet Union, save for one or two companies. So, we’re moving back to the USSR,” he believes. 

Lanovyi does not expect the Association Agreement and FTA with the EU, if signed, to bring more new private investors.  

“Only a government guarantee can draw a private investor – when the government undertakes liabilities to return money in certain cases. This is also a debt model of sorts. But guarantees of the Ukrainian government are worthless because of its huge debts,” he notes. 

The only option is to draw supranational investment. “This is only possible in segments linked to the entire Europe, such as the environment, energy, agriculture and the like. This kind of investment may still come to Ukraine under certain political conditions and commitments,” the expert claims. 

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According to the Q2’2013 report by Standard & Poor `s, Ukraine landed 7th out of 70 countries in the rate of default likelihood. Its total CPD was estimated at 44.25% compared to 34.8% in Q1’2013. The default prognosis is based on the country’s CDS index.

In February 2012, Bloomberg stated that Ukraine’s default risk was only lower than that of Greece.

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