sexta-feira, 12 de dezembro de 2014

Ukraine is near bankrupcy

Today I was searching the bond markets and I found something funny. I usually order the bonds by how much profit you can have from them and start skipping the usual suspects which always appear in the top: Venezuela (hiperinflation, crashing economy, oil price crash, etc), Argentina (pretty much by tradition they never repay their debts) and Greece. And guess who was among them, actually with a *worse* credit rating? Ukraine. And here is why:

1> Ukraine needs an endless amount of money to avoid bankrupcy:

Ukrainian economy is collapsing:
The Ukraine economy is on the brink of collapse after the International Monetary Fund identified a $15 billion shortfall in government funding that will need to be plugged "within weeks," according to the Financial Times. source: 
Ukraine already received more than US$ 8 billions from the IMF:
"The IMF has pledged $17 billion of funding for the country, and other donors have also chipped in with pledges of another $10 billion, of which Ukraine has received $8.2 billion." source and
Ukraine already received 1,6 billions euros from EU taxpayers:
"The EU has already handed out some €850 million in loans and grants to Ukraine since a pro-Western government took office at the end of February." ... "The European Union’s executive body is close to signing off on two disbursement of loans promised to Ukraine that would give Kiev about 760 million ($965 million) in additional funding by the end of the year, two senior officials said Tuesday." source:

"A loan was received on very favorable conditions,” the minister assured. “It is 15 years, interest rate at 1.375 percent, due in 2029. It will go on macro-financial assistance to our country," assured the minister. source:
And guess what? It's not nearly enough! Now the IMF says that Ukraine needs an extra 15 billions within weeks!

2> Ukrainian debt has a very short-term repayment schedule

3> Ukraine exports are facing a price crash and the loss of it's main custumer (Russia)

40% of ukranian exports are iron ore and processed iron, further 10% are oil and coal. All three of these commodities have faced a approximately 50% loss in value this year, which could potentially make the exploration of those uneconomic and loss-making and therefore quality for the closure of mines and fields.

Also since most coal mines are in the dombass region, production has crashed and noone will sell coal to Ukraine since they don't pay for what they buy, like in the gas example. Because of the lack of coal Ukraine experienced severe blackouts and needs to import electricity from Russia. source:

Exports of industrial products (helicopter engines, rail cars, jet engines, uranium fuel, electronics, etc) were mostly to Russia, who is no longer buying any of that. More than 60% of the exports goes to other former Soviet Republics countries with Russia, Kazakhstan and Belarus being the most important. To make things worse 70% of military exports from Ukraine went to Russia. source:

This means that ukrainian exports will fall dramatically, and therefore the country's currency will have to loose value constantly to rebalance. The incresed price of imports will push inflation to the roof. Actually this part is very similar to what is happened in Russia due to the crash in oil prices, but still, Ukraine is much more fragile than Russia and in a much worse shape to survive the storm.

4> Ukraine has a worse rating than even Argentina and Venezuela!

And it's bonds are crashing in the market, which means that Ukraine cannot get loans in the market, it is 100% dependent in the IMF and the European Union to provide growing amounts of crash. source:

5> Ukraine continues it's war against the eastern regions of it's own country

After every cease-fire Ukraine mounts a new offensive. All previous ones ended in disaster and changed almost nothing in terms of areas controlled. And yet they try again. I wonder who benefits from this? Certainly not the soldiers dying or the population being bombed in Donetsk.


The United States and the European Union are financing the bloodshed in dombass, since they are financing Ukraine. If they didn't, and sent signals that Ukraine should negotiate, then peace would be achieved, but instead Kiev only install temporary cease-fires to get more time to launch yet another offensive. Ukraine has no option but do what the USA and the EU tell them, because otherwise they will bankrupt immediately, since they have no money.

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