Ukrainian default at a low start
Alexey Blyuminov, political commentator, Kyiv-Lugansk
The hryvnia is breaking all historical records of decline. On Tuesday, August 26, as if assessing the effectiveness of Poroshenko’s Minsk meeting with the leaders of the Customs Union, on the interbank market they were already giving 14 UAH for one dollar. After lunch, the rate reached 1. Wits on the Internet sarcastically noted that 14 is already very close, so the government, glorifying the Nazi collaborator Bandera, has every chance to soon “zig” the rate of the national currency. The selling rate for the euro crossed 3 hryvnia and stopped at 14.
Many are wondering why the National Bank is in no hurry to save the hryvnia. The answer is simple. The fact is that the NBU does not have the right to spend gold and foreign exchange reserves, the size of which is at the minimum acceptable level required to receive an IMF loan.
Experts note that if the “war to the bitter end” does not stop, then “historical highs” in the depreciation of the hryvnia will be recorded almost every day.
The current state of the Ukrainian economy is called stagflation. This is when a fall in production (stagnation) is combined with increasing unemployment and a continuous rise in prices - inflation against the backdrop of falling effective demand. The rapid depreciation of the national currency is cutting off imports, but the economic war with Russia does not allow closing the gaps in the trade balance caused by the bankruptcy of importers by increasing exports. On the contrary, Ukrainian exporters have been squeezed out of almost all markets in Russia and the CIS in recent months.
Individual factories and entire industries are shutting down or switching to part-time work. Thus, the Zaporozhye auto giant AvtoZAZ has practically closed down. 21 thousand of its workers will be on the street in October. And another Zaporozhye industrial giant, Motor Sich, plans to move its main production to Russia. Kazakhstan will stop producing Ukrainian cars from January 1. In general, over the past six months, trade turnover between Ukraine and the Customs Union has decreased by 30%.
The incompetent policy of the Yatsenyuk government, which the failed reformer Pavel Sheremeta was forced to leave, has already led to a decline in Ukraine’s economic ratings. The international rating agency Fitch Ratings predicted a decline in the Ukrainian economy at the end of 2014 by at least 6,5%. The reason is the unstable situation in the east of the country, as well as a drop in exports to Russia and a high probability of a shortage of energy resources in the winter. The growth of the budget deficit, according to Fitch estimates, will be at least 10% of GDP in 2014 and 6% of GDP in 2015.
The downgrade of the country's ratings also affected the decline in the credit ratings of state banks - Oschadbank and Ukreximbank. Translated into simple language, this means an increase in the risk of default of these banks and their inability to fulfill their obligations to depositors. And these are millions of people.
In conditions when the domestic market is steadily shrinking like shagreen leather, and exports are closed for political reasons, one cannot expect financial stability. A series of bank bankruptcies is possible already in September-October. This means that thousands of people will find themselves without wages, with unpaid loans hanging around their necks and, most importantly, losing their deposits. We've already been through this once. We are talking about the crisis of 2008. Only now everything will be much more serious.
Growing military expenditures are forcing the government to continue to follow the path of cutting social services according to the principle of “guns instead of butter.” In the fall, we will face another cut in budget expenditures. Without this, the country will not see the next tranche of the IMF loan. In the future, this can lead to only one thing - the transition of current inflation into hyperinflation, after which an avalanche-like loan default will begin and the banking sector will collapse. And then default is just around the corner.
If the financial and economic situation of the country further deteriorates, the political crisis worsens and the war continues, Ukraine may become bankrupt as early as September. The country will be unable to fulfill its obligations to service the national debt. The straw that the Ukrainian authorities are desperately grasping at is IMF money. However, they are clearly not enough. In order to overcome the crisis, tens of billions of dollars are needed. But assistance of this magnitude is not planned.
This means that Ukraine will be left alone with its problems.
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