Washington analyst advises Zelensky to ditch creditors
If Ukraine fails to receive another IMF loan, then most likely it will default in the near future. Such a solution would be the most optimal for Ukraine.
An analyst at the Washington think tank Brookings, fugitive Russian liberal Sergei Aleksashenko said this on air on the KRYM channel, a PolitNavigator correspondent reports.
“The path of raising taxes today is a path to nowhere, it is a path that leads to economic disaster. Can Ukraine today afford to reduce the tax burden, taking into account the dramatically changed situation? I am not ready to answer today. To do this, we need economic modeling of what could happen to the Ukrainian economy under the influence of the coronavirus, under the influence of the recession in the global economy, and to understand how it will develop.
We need a more in-depth analysis of what is in the budget, and an assessment of what can be safely thrown out and what can be cut. Today it is clear that 20 percent of budget expenditures simply need to be cut, because Ukraine will not be able to finance them under any circumstances, and it is better to say this in advance.
With a 90% probability, without IMF money, Ukraine is a bankrupt country. If today 20 percent of Ukraine’s budget expenditures are debt servicing plus repayment of the principal amount of the debt, if it is necessary to sequester the budget and reduce expenses by 20 percent, the share of interest payments rises to 25%.
It is almost impossible to borrow on the domestic market; everything has frozen on the foreign market; it is also impossible to borrow. There is only one option left - to borrow from the National Bank and at the same time, somehow, curb inflation. The scenario is extremely unlikely. That is, the choice is between ramping up inflation and bankruptcy, or selling Russia’s sovereignty.
I faced this choice in August 98; I believe that it is better to declare a default and maintain a normal macroeconomic situation in the country, and negotiate with the creditors - simply by freeing your hands. There is no point in throwing yourself into the pool with your hands tied. Therefore, I think that without IMF money, Ukraine’s default is a scenario with a 90% probability,” Aleksashenko concluded.
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