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ISDA is threatening Ukraine.

Lunatic Joe | 21.10.2015 07:43 | World

Kiev hopes to stabilize the economic situation by massive wage cuts.




The economic situation in Ukraine gives food for increasing number of questions on the line being pursued by the government of Arseniy Yatsenyuk and further perspective for the country striving for closer relationship and integration with the EU. According to the Ukrainian Prime Minister’s Directive No. 978-p of 22 September, Kiev declared moratorium on fulfillment of its foreign debt obligations and didn’t pay off the USD 500 million in Eurobond debt. The International Swop and Derivative Association (ISDA) officially passed a decision to recognize Ukraine as being in technical default since 4 October 2015 following Kiev’s refusal to fulfill its obligations to the creditors.

Such decisions on part of the Ukrainian leadership are actually no wonder, as the majority of experts think, for the situation Ukraine has been trapped into is extremely dramatic. In absence of real reforms in financial and economic sphere ineffective war on corruption and coming winter have forced Kiev to resume Russian gas supplies from 12 October. Kiev has to spend hundreds millions dollars each month and brave some rather extraordinary steps.

The most intensely debated theme on many Ukrainian forums and in social nets has been the experimental project which appears to have been launched recently in many state Ukrainian institutions. This seems to be sort of a chance for Yatsenyuk government to save rather a good portion of the budget money. These are State Treasury Certificates which are being obligatorily distributed in state institutions as part of the wages paid to employees.

Such a tool of state holdings is no discovery at all and has been rather often employed in different countries while obligatory usage of it is still rather a rare practice. Once the Ukrainian authorities have chosen it to resort to such a method of budget economizing then it means that financially Kiev is doing very badly indeed. The quickest way of improving situation is to borrow money from your own citizens without even asking for their allowance. Millions Ukrainians will find part of their wages actually frozen for 5 years. The budget will get the necessary sums while the authority – the possibility to solve the problem of external debt. Distribution of certificates may well become not a temporary but rather a common practice in financial settlements between the Ukrainian government and Ukrainian citizens for nearest months at best and years to come at worst.

It’s hard to foresee all the dire consequences of this political course of Kiev with time passing. The most favorable scenario will be when IMF and other western creditors find it possible to get back those billions they had given Ukraine. It would have really positive effect on economic situation in the European Union.

Lunatic Joe

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