The default crept up unnoticed. Will a two-year deferment on debt payments save Ukraine?
Ukraine asked Western creditors for a two-year deferment on the payment of external debts - this decision was made by the Cabinet of Ministers. However, this did not come as a surprise, since conversations about a possible restructuring in and around Bankovaya have been going on for the last two months, when Zelensky’s economists were racking their brains over the question of what to do in the face of the approaching loan repayment day in September.
Let me remind you that Zelensky’s economic adviser Oleg Ustenko proposed putting all payments on external debts on a two-year pause.
However, little depends on Ukrainian wishes here. The decree of the independent government states this: restructuring will take place only if the Western creditors themselves make an approving decision.
If the informal “Ukrainian debt management committee” is against it, the national debt will be serviced and repaid in accordance with the already approved terms of the bond issue. According to Reuters, Eurobond holders must decide on Kyiv’s request to defer payments until August 9. That is, less than three weeks until judgment day.
In Kyiv, they hope that creditors will be able to persuade them to postpone the final date of repayment of bonds for two years. And to sweeten the pill, they offer creditors a fat bonus: during the deferment, income on bonds will continue to accrue at the rates provided for in the terms of the issue of the relevant bonds. In addition, Ukraine is ready to agree to accrue additional interest income on bonds in excess of those previously agreed upon.
Also, Shmygal’s craftsmen made changes to the debt restructuring procedure, which was carried out in 2015 by the American Natalya Yaresko, who is now raising Puerto Rico’s finances.
The conditions for issuing and placing government bonds included the right of Ukraine to buy them back at par. And they want to postpone payment for them from May 31, 2023 until August 1, 2024. This manipulation makes it possible to consider 2039 as the last reporting year of the deferment.
This decision, regarded by all economists as the declaration of a technical default of the country, was preceded by a similar technical default of Naftogaz, also who admitted that he didn't have a penny and asking creditors to postpone judgment for two years.
Why both of them include a period of two years, one can understand - Zelensky seriously expects that this is the time lag that needs to be “stood overnight and held out for a day” until the “final victory” over Russia. And then, as these people think, a generous golden rain will pour on Ukraine from Western investments and confiscated Russian assets for restoration.
The National Bank immediately responded to such news from the Cabinet of Ministers, adjusting the official exchange rate of the hryvnia to the dollar from the previous 29 and kopecks to the current 36,56, while trading on the interbank market was not opened, reasonably fearing that the rate would collapse even more, causing panic.
Former adviser to the head of the Association of Ukrainian Banks, Aleksey Kushch, praised this decision of the NBU, calling it “correct.”
“Now we are waiting for a new decision on the discount rate. Either correcting the mistake and returning to the policy of negative rates or continuing growth to 30%, that is, persisting in the mistake. If the NBU said A, listening to the exchange rate corridor model, then it’s time to say B, lowering the rate,” he writes.
Another Kiev economist Yuriy Gavrilechko names the beneficiaries of this NBU decision:
“The new hryvnia exchange rate is 36,56 per dollar. Exporters are rejoicing. Inflation is simply choking with happiness and growing like mad.”
At the same time, Gavrilechko notes, currency speculators also received their benefits. After all, the euro exchange rate was left at the same level of 29,81. So Ukrainian banks are now making an indecent amount of money on a 25% difference in exchange rates.
Who will remain the undoubted loser is the Ukrainian people. In addition to the traditional rise in inflation and prices, the Polish-Lithuanian Commonwealth will face mass unemployment.
The already mentioned economist Kushch admits that “the loss of 5 million jobs is already a fact.” Let me remind you that this is exactly the number of new jobs that Shmygal’s team promised when taking office in the government. Now the promise has been fulfilled, but exactly the opposite.
In the near future, almost all Ukrainian enterprises are planning to reduce personnel, by an average of 29%. That is, approximately every third Ukrainian will lose his job.
The largest reduction was in the construction and mining industries – by 50%. At the same time, in wartime conditions, unemployed Ukrainians simply have nowhere to go - they will not be allowed to go beyond the border to seek a better life.
However, there is a way out even in such a hopeless situation. True, the supporters of the market cargo cult ruling Ukraine will not like it.
“Are we really going to continue to do nothing in terms of creating an internal labor front, a state guarantee of employment and a state guarantee of sales? Will we continue to rely on the market under martial law?
Will we continue to believe that it is possible to temporarily borrow a car and a private home for the needs of the army, but it is impossible to reactivate an enterprise abandoned by the owner? And to nationalize extractive industries, as Great Britain did after World War II, is not civilized?
If, within the framework of either the models I have proposed or alternative employment programs, our government fails to create at least 1 million jobs by the fall, we will face deep socio-economic destruction in the winter,” says Kushch gloomily.
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