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4 April, 2011  ▪  Viktor Suslov

The Ticking Meter

A former Economy Minister, explains why Ukraine is sixth among countries supposedly facing default

UW: Business Insider recently included Ukraine on its list of 18 countries that are supposedly on the verge of default. How justified is that?

– These analysts only confirmed what our specialists and international observers have been saying for some time now. The NBU reports that short-term public and private foreign debt due for repayment, refinancing or restructuring by July 1, 2011, has reached US $42.1bn. And this does not include the interest due! As of January 1, currency reserves were US $34.6bn. This means that the country was then able to cover only 82% of its liabilities. Today, only IMF credits and sovereign loans are saving Ukraine from default. But this doesn’t encourage economic reform or debt reduction. It just aggravates the problem. The government is disinclined to balance Budget expenditures and revenues, to set up the conditions to reduce the current account deficit, or to respond appropriately to many other economic challenges. The result is that we’re living in debt. Gross foreign debt has grown over US $10bn since 2008 and is now over US $104.5bn. In short, Business Insider’s estimates are justified and we really do face the threat of a default.

This is why Ukraine needs reforms. Actually, the government is busy trying to do just that, but all its measures are only messing the economy up even more. The current account deficit is only likely going to get worse in 2011. The same for debt.

UW: The Government says it’s cutting Budget expenditures down sharply to make it easier to pay off debts. Is this really a way out?

– It’s not enough to cut down expenditures. Revenues need to go up, too, and the country has to stop living in debt. But here the Government is asking the IMF for credit without presenting any programs that this money should go towards. Devaluating the hryvnia to support exporters and increase the inflow of hard currency to the country must be part of such a policy. Yet this Government is blocking exports by restricting exports of farm products… Sources in Odesa ports say that it’s virtually impossible now to ship any cargo from the country. Customs procedures are extremely complicated and bribery is thriving. Shipping companies are now trying to avoid transit routes across the border of Ukraine. So, instead of taking advantage of its geographical location, the Government is even losing out on that. 

In line for a default

Business Insider’s latest ratings of countries at risk of default include several European countries, mostly from the former socialist camp. And Ukraine, too, finds itself in this. With a public external debt of US $42.1 billion and a sluggish economy, Ukraine is sixth for default risk, between Portugal and the United Arab Emirates. Whereas Portugal is also being dragged down by foreign debt, worth EUR $20bn, the UAE, especially Dubai, is suffering from an overheated property market. BI says it looked primarily at economic and political stabilization factors in each country, together with the level of foreign debt.

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