Natalie Jaresko, Ukraine’s Minister of Finance. World Economic Forum 2015. Photo^

The VoxUkraine Brief: Agreements Under Pressure

#VoxUkraine weekly selection of best articles on Ukraine.

by Tom Coupé and Mykola Myagky, VoxUkraine Editorial Board

produced by Kseniya Alekankina

This week’s must reads point out the dangers that face Ukraine’s two crucial agreements — the agreement with the IMF and the Minsk Agreement.

As part of the deal with the IMF, Ukraine is expected to restructure its debt — not surprisingly, those holding the debt are not keen on restructuring, as can be seen from the current negotiations of Ukraine’s 100% state-owned Export — Import bank:

“The State Export-Import Bank of Ukraine is in a deadlock over its request for a three-month breather on repaying $750 million of bonds due this month after failing to get support from creditors…Stan Manoukian, the Agoura Hills, California-based founder of Independent Credit Research LLC, predicts failure to get an extension will lead to default. “I think they will default because the payment of the bond has to be approved by the supervisory board of the bank and it has to do it 30 days in advance,” he said by phone Tuesday.”

But Ukrainian officials are willing to play hard:

“Ukraine plans to tell investors on Friday that it will allow a state-owned bank to default unless a deal with creditors can be agreed as the embattled country takes an ever tougher approach to debt negotiations.”

Ukraine’s delegation in Washington together with the IMF held investor presentation on the current status of debt operation. Natalie Jaresko, Ukraine’s Minister of Finance, informed that while there is a disagreement with a creditor committee as to the way of restructuring Ukraine’s sovereign external debt, negotiations will continue in April-May. Minister reaffirmed Ukraine will stick to the IMF program and will do whatever it takes to proceed with debt operation.

Indeed, Ukraine may have some interesting options to consider, as suggested in FTAlphaville by scholars of the Duke University School of Law.

Some commentators this week have also proposed an alternative to debt restructuring: rather than writing off debt, the debtors should go after those who misused or stole the debt money:

“We believe that a significant proportion of this ended in the pockets of the president and his family, or in the accounts of the oligarchs and other close associates of the ruling clan. The Kiev club could base its stance on the findings of the tribunal and could offer to drop its claims against the Ukraine government in return for transferring them to the former officials, politicians and oligarchs responsible.”

On the positive note, Ukrainian hryvnia ended the week rising against the US dollar to 21 UAH per US$, as the central bank weighed lifting some of the f/x restrictions.

Not only the IMF agreement faces trouble, the same is true for the Minsk agreement, with people continuing to be killed both on the front lines and in cities far from the conflict on an almost daily basis:

“The peace talks clearly did not go well. But the bloodshed rages on. At least six Ukrainian servicemen were killed during the past 24 hours and 12 injured as a fresh round a diplomatic talks failed to secure a lasting cease-fire in Ukraine’s still smoldering standoff with Russian-backed separatists controlling breakaway eastern regions. Some experts believe Russian-backed separatists are on the verge of mounting a full-blown offensive to capture more territory, something they have repeatedly threatened to do. Risk of such a scenario is increasing “especially as the ground dries out, and ‘offensive’ operations become easier,” said Timothy Ash, who heads emerging market research for Standard Bank in London.”

Another sign of trouble is the murder, this week, of a journalist and a politician:

“A controversial pro-Russian journalist was shot dead outside his home in Kiev on Thursday, just hours after a prominent opposition politician was murdered under similar circumstances in Ukraine’s capital.”

Both the war threat and the restructuring troubles means Ukraine’s trouble are far from over

“The next few months are going to be tough for Ukraine, even if there is no more fighting. On April 10th Standard and Poor’s, a rating agency, downgraded the country’s sovereign debt. Foreign-exchange reserves are still under pressure. And things could get worse.”

This remaining risk means that even if reforms happen — and some reforms happen as the 7th wave of VoxUkraine’s IMoRe index shows

– that these reforms might not be enough, as Eric Livny illustrates using the example of Georgia

“What may have been lost on Georgia’s reformers, however, is that open doors are neither a necessary nor sufficient condition for significant, long-term investment to come in. “Open doors” are not a necessary condition because investors would bribe their way through any doors if the business opportunity is there, as is the case in the oil- and gas-rich Azerbaijan. “Open doors” are far, very far from being a sufficient condition. In the presence of serious risks investors may come in to enjoy a country’s hospitality but would not park their money there beyond a few years.”

That Ukraine’s policy makers still need to learn how to work and reform properly is also nicely illustrated by three VoxUkraine columns this week.

Kateryna Dronova critics the recent ban on Communist and Nazi propaganda:

“With the extensive state practice in this realm, Ukrainian government could have learnt a lesson from our neighbors in order to set a proper balance between strife to abandon gruesome historical past and secure the fulfillment of citizens’ rights. Unfortunately, it failed to do so, since the adopted ban is clearly overbroad and raises numerous questions to its legality and reasonableness.”

Timofiy Mylovanov criticizes the ban on log exports:

“Second, the Log Export Ban and other similar measures underscore that the Ukrainian parliament finds it acceptable to intervene in functioning of the markets based on empirically dubious rationale. The parliament substitutes the market by deciding how resources should be allocated. In doing so, the parliament teaches the businesses and the industry that they should compete through lobbying in the parliament, financial and informational, rather than through innovation and efficiency improvement in the market place.”

While Yuriy Gorodnichenko, Timofiy Mylovanov, Oleksandr Talavera and Olena Talavera criticize the unprofessional use of Twitter by many government agencies:

“One can only wonder how a ministry can design and implement reforms while ignoring some of the most powerful tools of communication.”

Also on VoxUkraine

Ukraine has a new president, a new parliament, and a new government, which includes many new faces. The parliament consists of eight factions, and most of the parties represented in the Ukrainian parliament did not exist a year ago. This report analyzes the voting patterns of the new Ukrainian parliament. There is a healthy core that votes together. It suggests that the parliament is functional and is capable of resolving differences and passing legislation. At the same time, the core excludes some of prominent civil activists and includes some members of the parties outside of the coaltion, including some from the Opposition Block. It hints at dissent and discontent among some civil activists.

VoxUkraine and Novoe Vremya present an interesting project — 10 books about successful country reforming.

Have a great weekend!

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