Thread: Ukraine and the coming bankruptcy

Khramov says: “These actions send an effective message, and we will continue them,” said Vitaly Khramov, one of Ukraine’s most prominent Cossack elders. “We want them to understand that the state of Ukraine is a stillborn project, a tumor that Ukrainians must extract from themselves … We are the immunity against this disease.” As the head of Sobol, the radical Cossack battalion whose flags adorned the training camp last week, Khramov is one of the movement’s key ideologues in Ukraine, and his preaching has reached many of the boys who attend the Cossack camps. (Among the ideas he spouted during his interview with TIME were the notions that the U.S. is a satanic nation secretly run by the Rockefeller family, that Jews practice ritual sacrifice and necrophilia, and that Vladimir Putin, Khramov’s political hero, is a future saint of the Russian Orthodox Church.)"

Read more: The Cossacks Are on the Rise Again. For Real.

If he wishes to be Russian let him be so?

Snapper he was "allegedly" shot by the SBU btw, not Russian KGB/FSB he wanted the Eastern Ukraine republic to go indy... Can't really blame Russia for his death he wanted either joining Russia or indy.

The blame is not where you placed it.


Also some Western Ukranian organizations are to a large degree worse.
Since your Polish why didn't you support the OUN-UPA bike rally they wanted to hold in Poland and Ukraine a few years ago?... (rhetorical question btw... couldn't find the new article again but I remember the proposal to have a friendship rally in the regions close to the border)
P.S. sorry for not linking can't find the news story again, google seems harder to search lately.
_________

The West Ukranian governors/council heads also had a meetings in their oblasts to secede during the 2004 time frame its just harder to find the article... btw, If you find my prior post (year+ ago) on Ukraine it should be there.

http://www.guardian.co.uk/world/2004...nickpatonwalsh
I think three regional councils held votes Donetsk, Luhansk, Kharkiv not sure though but I remember a lot of governors left after elections both in the East and West... Also Lviv and one more in the west held votes (regional councils) But I really don't remember to be honest.

Turkey will not get involved. The cossacks for the most part do not have much influence, especially the radical ones you posted. The don host does have influence but it is not as bigoted as the one you mention. Western Ukraine will not go to Poland unless its a forced issue, they may bicker with the Eastern Part of Ukraine but do not confuse in-house disputes with militancy.

____
Very interesting story if true but hard time believing it.
good article to read either way.
http://www.osw.waw.pl/en/publikacje/...-eu-and-russia
Not sure about his two groups thing there are quiet a few, Donestk, Dnepropetrovsk, Media & Bankers, Agrarians and Industrialists. Those are my main divisional thoughts and they overlap more or less...

http://translate.google.com/translat...etail%2F102039

http://zik.ua/en/news/2011/09/20/309790
http://zik.ua/en/news/2011/09/17/309487
less interesting.

The SBU has one main objective; protect the oligarchy, one of whom runs it.

google seems harder to search lately

Huh, I thought I lost my magic touch.

Originally Posted by Doktor

Huh, I thought I lost my magic touch.

They changed the way results get displayed/searched and removed the historical index archive I think. Market Sceptics commented on it.
*****Google Killed News Archive Search***** | Market Skeptics (I actually use DuckDuckGo.com a lot lately it uses all search engines and has a privacy filter heh)

But this story basically clinches it for me.
Mish's Global Economic Trend Analysis: Cash Crunch in China Picks Up Momentum; Chinese Economy "Teetering On the Edge"
Asia-China is an important market for Steelmakers in Ukraine last time prices went down for their products they were on the brink and Europe stepped in. Higher grain prices won't save them and there is an influence which I completely ignored.

Russia metals and mining | Metals and mining in Russia | BRIC Report on Russia metals and mining industry
Older article (just reverse the positives) but Russia will get hit as well on both fronts Oil and Metals.

The most important question to me is the following. Whom do the industrialist steelmakers owe money to in both Russia and Ukraine. Some are self-finance (best example since I looked it up yesterday would be Kholomoyski and his group since they own the bank that finances their steelmaking 'Privat' group.)

A scrap over Ukraine's steel industry - BUSINESS NEW EUROPE
Older story but timely.

Thoughts about Oligarchs and Mid/Small business
Kholomoyski (Private Group) is basically in competition with Pinchuk (Interpipe Group) over a plant. Both are more or less Dnepropetrovsk based but Privat is a little larger. Has lots of electricity investments in both east/west parts. Once they resole their dispute they will most likely reconcile. Both groups have some media holdings direct/indirect.
Privat Group - Wikipedia, the free encyclopedia
Interpipe Group - Wikipedia, the free encyclopedia

Akhmetov (SCM Holdings - Wikipedia, the free encyclopedia) Donetsk Clan basically more heavily into Metals less heavily into Finance, my feeling is they have more exposure to foreign (non-Russian/Ukrainian) financing than the others ergo higher default risk but benefit the most if steel does well. Saving grace is the Life stake telecom stake which may or may not allow cash flow diversion if SHTF. The problem is not diversification but the debt overhand in my view.

Russian competitors that are more or less have good presence in Ukraine, Deripaska I think with Aluminum (not really competing with steelmakers to a degree) and EvrazGroup owned by Abramovich which does somewhat compete but not as much.

Firtash is interesting since he went heavy into nitrogen plants and chemical plants.

Kyiv Post. Independence. Community. Trust - Ukraine - #10 Richest: Dmytro Firtash, 45
All of these are somewhat inaccurate (standing wise) but information wise it is a good source to get the gist of it. The top 10 could be gotten from forbes and other places.

Several thoughts the Steel Magnates and Finacial magnates are prone to severe cash flow problems in my view since they are at the mercy of the world market for steel products in a sense (except few groups[plants] which produce things like Interpipe's rail stock mostly ergo a very stable demand). During the crisis they will be the hardest hit is my guess.

The food Magnates and people like Firstash whom have a niche corner of an industry that has extremely stable demand will dominate during the crisis. Think nitrogen fertilizer for agriculture or Confectionary producers (http://www.konti.com/UserFiles/File/...TI%20Group.pdf)
Konti is owned by Boris Kolesnikov
Roshen by Petro Poroshenko
these companies are more or less cash cows when the crisis hits they exert more power due to positive cash flow and desperation of others. Poroshenko's (Central Group related to Yuschenko) Roshen is slightly larger in comparison to (Donetsk Group) Kolesnikov. Roshen is about 1/3rd to a 1/2 larger. But basically both are very very rich and are agriculturally vertically integrated (ergo sugar is produced on their own farms and then used in their own products). There are hundreds of more agricultural oligarchs whom own either grain/other fields with Dnepr connected transport barges and/or ports they considerably outnumber the metal oligarchs in number. Quiet examples of this Agrimoney.com | Oleg Bakhmatyuk - Billionaire puts Avangard under wing of farm giant
Another example is Oligarchs who own port facilities and transportation along the southern coast not that many but still a lot of them they go with the flow of their main pass through ergo metal/grain etc.

The problem all these food producers have is the end market. A lot of it goes to Europe but most goes to Russia, due to far higher subsidies and barriers into Europe agriculture market. If Snapper remembers the meat row...
Below
Warsaw Business Journal - Online Portal - wbj.pl
http://euobserver.com/19/23817

Russia imposed the ban on Polish meat and vegetable exports in 2005, citing poor standards in re-export certification that allegedly saw Latin American buffalo meat sold as European beef in Russian stores. The embargo is costing Poland about €400 million a year in lost trade.

They also banned other stuff a year after and resumed imports around 2007
EU upset at Russian ban on 70 European meat exporters — EUbusiness - legal, business and economic news from Europe and the EU

There was a small row with Ukraine over sugar and milk (due to blocking Russia's exports in same things which was miniscule, but reciprocity prevailed after a brief shock)

Another thought about small Financial bankers is that most are sitting on inflated real estate values and when the economy dives again their lack of cash flow and insolvency will cause the liquidation of real estate.

Most middle market businesses also would suffer if Russian markets were barriered off. Think furniture manufacturers, tile makers, alcohol producers, resorts, and most business which provide a value added service or a good that enables them to be larger then 30-50 people in size.

(A little on resorts this area is suffering horrendously lately btw due to mispricing Crimea Tourist Season Losses, Sad kind of the decine started at independence when in their infinate wisdom Ukraine put up $600 dollar visas for Russian's killing the tourist season in that year and revising it later on, the cost is completely unreasonable because you could get better service/fun going to Bulgaria/Egypt/Turkey/anywhere at a lower price. The best quote from the article is one that says that "10% of people whom visited this year said they will never ever come again". Overall tourist numbers are between 10-30% lower than last year.)
___

The cash flow matters a lot because it allows the balance of payments to keep the currency flat at 8 or whatever the central bank is tied it towards. Those 100s millions in trade flows from an agri business most likely sustain quiet a few billion in foreign debt by virtue of them being converted into hryvna to pay workers and taxes etc... there is some escape by lowering margins and offshoring some profit but still a lot of room for the government to benefit. (Perhaps I am totally wrong). Same thing to value added business from chocolate makers to furniture.

Now the actual reality of power dynamics takes over the top oligarchs control everything due to massive cash flow from metal, if that goes negative their influence wanes rather dramatically since their ability to fund parties and bribe officials falls. Still a lot of influence because constituency of having a large labor base. But the smallers agro oligarchs cannot afford the fall in the cash flow if it does they get slowly expropriated in a sense by others more solvent, in some sense they will be able to expand easier since bribes and officialdom barriers fall when SHTF. If they see that Russia starts limiting the amount of produce entered due to EU conflicts for them it becomes a very real economic survival imperative to normalize relations and eliminate problems. The reality is most are suppliers of their local region or area but as they grew and continue to grow they begin to be reliant on the entry to the Russian market. It becomes paramount even for small producers.

A superb analysis: In short Firstash wins?

Originally Posted by snapper

A superb analysis: In short Firstash wins?

I think him, Pinchuk, and Kholomoyski win, while the Donetsk clan looses somewhat although some of them like Boris Kolesnikov (the Konti owner), are very stable and would have influence I think Akhmetov over leveraged himself. If Metal suffers so will his influence.

The line clans are walking right now is getting tighter the choice is between having access to Russian market and EU-Fta (sort of at least for non food-goods producers but benefits metal producers) Yanukovich is basically owned by Akhmetov, others whom may not benefit from the Fta could switch to pursue their benefit via other parties.

The absolute worst thing that could happen is if there is no ability to choose both acceptance in Russia and Eu-Fta this would split clans via economic interests. So far it appears Russia doesn't care about Eu-Fta (they are negotiating right now UPDATE 3-Russia agrees to review gas deal-Ukraine PM | ReutersThis title is wrong btw they agreed to nothing so far) Current government wants both freedom of association without Russia benefiting either by getting the energy system or customs leverage AND cheap gas prices for steel competitiveness. If gas prices are not lowered metal producers are skrwd after gas prices go up, ergo January of next year. (unless they are very niche producers).
Russia thus far got nothing it wanted, no customs union, no language resolution, no gas transport system. This time there is no excuse for not giving one of the three to it for something in return.

P.S. In one year the second pipe in North Stream goes online and leverage is further reduced. The ability to maneuver is gone. The optimal in their mind is to take over and consolidate some Ukranian mass steel producers with Russian ones without too much bankruptcy and stoppage I think.

3 days of negotiations, no results of any kind thus far, 24-27th.

Ukraine: Between a rock and a hard place | EurActiv
"Ukraine: Between a rock and a hard place"

Ukraine faces two main threats. The first issue concerns the potential development of further economic crises across the territory of the European Union. The situation regarding the unreined state debts of Greece, Ireland, Portugal, Spain and Italy, in conjunction with the potential devaluation of the euro, threatens to destabilise the Eurozone with the knock-on effect of an export decline for Ukraine. The resulting impact upon the Ukrainian economy is likely to be immediate and traumatic.

The second threat is that of persuasive pressure, of Russian origin, for Ukraine to join the Customs Union of Russia, Belarus and Kazakhstan. This might ultimately lead to Ukraine being drawn into the Unitary Economic Space, which the Union's member states will implement as on 1 January 2012.

IfUkraine opts for such a route it is fair to suggest that we may see Ukraine's inclusion into the Collective Security Treaty Organisation (CSTO); the Russian answer to NATO. Should events follow this tack, the possibility of economic support from a Free Trade Area with the EU or collective Euro-Atlantic security support would be utterly dismissed.

Since mid-2011 Russian actions towards Ukraine have resembled acts of 'economic warfare'. Customs Union signatories are currently exercising a ban on the meat and dairy exports of over 30 Ukrainian producers. New restrictions on the export of Ukrainian confectionery and sugar have recently been introduced. Ukrainian chemical, metallurgical and industrial piping enterprises, which are Ukraine's largest exporters, are already experiencing similar restrictions over export to Russia. Russian gas however remains the most potent tool for political pressure.

The sugar and milk are self inflicted wounds btw, ergo its a tit-for-tat response. Some piping enterprises are granted exemptions ergo Pinchuk gets exemptions to continue exporting. Kazakhstan imposed tarrifs on confectionery and sugar from Ukraine recently as well. Ukraine joining EU-FTA would mean they have no duties on those products from EU and keeping free trade with Russia would make them a channel to re-export EU goods into Russia duty free, that won't be allowed to happen so duties are being hiked up right now.

From our perspective, Kyiv choosing to favour Brussels would produce the optimum gains for both Ukraine and the EU. Such a relationship would not only secure trade relations in the form of a mutual Free Trade Area, but would also equip Brussels with an effective channel for counteracting Russian attempts to impose political pressure upon Eastern European states through economic means.

Bankruptcy for most enterprises whom export something to Russia. If there is even slight retaliation and duty increases. The FTA is proposed precisely for re-export to CIS without tariffs, expecting those to not be hiked up prior to FTA goes into force is stupid. Five years ago if they allowed Ukraine to compete in these sectors at comparable rates within EU as it does in Russia, the enterprises would be able to survive, today nope.

A reduced economic cooperation with Russia will likely be the price Ukraine has to pay for its integration into Greater Europe, with a corresponding negative impact on the economies of both sides.

It is conceivable that Moscow will not want to let Ukraine slip from its grasp without a struggle resulting in the exertion of political forces at many levels to either tempt or force Ukraine away from the European family. However, with firm political vision and steadfast support from the EU, Ukraine can rapidly implement Europeanisation at many levels.

If the people have no jobs in order to feed themselves due to "reduced economic cooperation" we might get a replay of 2004. This time nobody will care what the external policy and some might even not care if Ukraine stays independent.

The Fta as it is now is nothing more other than reducing tariffs on bulk commodity rates and keeping finished products out it does not solve the fundamental problem of allowing end-user goods access to the Euro market in return it provides the end-user goods access for the Euro market. Russia allows end-user goods access to its market. Eliminating the latter and not providing the former is not realistic.
Ukraine could have paid for the time to upgrade re-orient by selling the gas-transport system but the access is not there and selling it would eliminate subsidy of the metal sector.

How could have it happened differently?
Very simple, follow the path of Singapore, no focus on any particular nation and try to get access to end-user goods markets anywhere and everywhere. Why isn't there much trade between Ukraine and Turkey? or Algeirs?, or Syria?, or Serbia?, or Egypt? I am sure the big steel companies sell stuff there but what about making it easier for the little and middle guys to do business? nothing not under the Yuschenkos or Yanukoviches, neither improved climate for small business or middle business both ratcheted up barriers for them and the final tax code reform helps clinch the bane of their existence.
Subsidizing metal sector with cheap gas prices would have made sense if the savings went into energy efficiency they didn't, they could have gone if cheap gas prices were kept for the gov't but world prices were passed to commercial users but too much corruption for that. The absolute stupidity of private property rights still not recognized and in essence not allowing people to buy/sell property freely, Russia allows you to buy/sell property but in Ukraine you still can't own land unless you go through labyrinthine regulations and pay a bribe at ever deputy's desk.

Anyways time will tell.

Taras Kuzio’s Blog » Blog Archive » This is not a crisis. This is a collapse.
Great summary of more or less how things are with the 8 bullet points.

1. An inability and determined unwillingness by the incumbent President to discharge his duties properly. Viktor Yanukovych is focused solely on setting himself and his family up in the newly-conquered country, with ‘Mezhiryas’, helicopters and other bagatelle. He behaves like a typical African President from the 1960′s and the 1970′s, not having time for affairs of state and being more concerned with hunting lodges and diamond-studded toilets.

2. Incompetence of the Government and its inability to rise to the challenges of new times. The Government is staffed by ‘old-school’ officials such as Azarov, or contemporary oligarchs, busy lobbying their own interests and businesses. This symbiosis is practically paralysing the work of the executive branch and increases the costs, to crazy levels, of even reasonably intentioned projects, .

3. Total corruption amongst the authorities. If the modest official Vasyl Volga, takes a half-million dollar bribe, then what do the others take? I don’t want to even think about this – but corruption has completely paralysed economic opportunities for small and middle-rank businesses and even put a question-mark against the survival of the country’s population itself.

4. The commodity-linked nature of the budget-forming sectors of the economy make Ukraine almost totally dependent on the global situation, and this is deteriorating because of unfavourable trends in the economies of the West.

5. Deterioration of relations with the West because of authoritarian trends in internal politics, primarily the case against Tymoshenko. In such a situation, the country’s borrowing is at risk, and the government has no money of its own.

6. Deterioration of relations with Russia because of the reluctance of Yanukovych to give up assets to Putin and to the Russian oligarchs. In such situation, new agreements on gas price cannot be counted on, again hitting the economy.

7. Degradation of the power structures. The prosecutor’s office and the courts are used as tools to solve political problems and provide cover for business asset ‘carve-ups’. The state security service [SBU] has become a holding company under the control of Valeriy Khoroshkovsky. The army in this country is an army of beggars.

8. Complete disinterest of state officials to rectify the situation. Yanukovych is occupied with the construction of helicopter pads [at his residences near Kyiv and in Crimea etc.], his nearest circle compromise him in the West and in Moscow in order to take his place, while the the middle circle compromise the inner circle in Yanukovch’s eyes in order to take place of the inner circle. With the increasing crisis all these ‘worms in the can’ will start to shoot and jail one other. The detention of the Vasyl Volga is just the start.

9. Lack of coordination between the government and the National Bank of Ukraine, and the desire of each of these parties to consider only corporate, and not public interests. A similar situation was observed during Yushchenko’s period in office, but with a small diffence. Yushchenko was a banker and least understood what was happening around him.

10. Disoriention amongst the general population, disillusioned with the authorities, but not seeing any alternatives to what is happening, making it impossible for serious reforms to take place.

This is not even a crisis. This is a collapse.

Several additions to this. The free trade agrement stipulated 50% tarrifs on Ukraine confectionary manufacturers, overall the quotas are mostly for agrarian staple foods and fruits/vegetables and very low amounts of meat. This is not what the oligarchs were looking for at all. Even the agrarian oligarchs won't be happy with this if it happens.
This essentially knocks at the center oligarchs since their interests are to put it lightly crapped on.

The isolation is interesting thus far there is neither the free trade with Europe and now the rapidly increasing barriers to the Russian market, those barriers go into force on the customs union going operational on Jan 1st.

Usually something always happens that is not expected. The problem with the overall dynamic and negotiations right now is that this time, unlike previous times it seems first the lockout happens, THEN there is a resolution. In every prior time the oligarchs negotiated away their economic interests and had them serviced in the present without interruption more or less. I think this time they will be locked out first so that their bargaining position sets them against each other and fractures the overall coallescense of interests, ergo a common position on certain aspects.

Pension reform, and the small/mid business barriers I think is what detonates society. Energy simply curates the amount of steel produced and profit margins. Land acts ergo ownership registration more or less stalled since 2003 and they are resuming it now with 330,000 acts in backlog for privatization of land etc...
Google Translate

Political situation is in essense unoposed, the idiocy of this is that there is no feedback loop since contention requires leverage in order to bargain in the political sphere. Right now the economic interests are aligned and laws are being pushed through favoring money prerogatives above all else. The amount of destabilization society-wise is immense. Azarov the finance fool stated that small business benefited from 'reforms' and turnover grew by 26% except the most likely scenario is prices went up by that much as small business went into the shadow economy and hiked rates due to risk/bribes now necessary. The 26% official figure is the ability of mid-big business to jack up rates due to lower official competition while all businesses jack prices up on consumers to the appropriate risk-reward levels.

Still curious what happens to set things off.

Kyiv Post. Independence. Community. Trust - Opinion - OP-ED - Ukraine: racing against time

Ukraine: racing against time
2 days ago at 11:12 | Timothy Ash
Editor’s Note:Timothy Ash is global head of emerging markets research at the Royal Bank of Scotland in London. The following is a note to investors that he circulated early on Oct. 7 after a visit to Ukraine.

Ukraine faces an acutely challenging balance of payments position. This is among the most important of findings after visiting Kyiv on Oct. 4-6, meeting with officials from the National Bank of Ukraine, the Ministry of Finance, the International Monetary Fund, the World Bank, European Union, alongside meeting local banks, private sector analysts and diplomats.

The current account deficit is running at around 3-4 percent of gross domestic product and widening, while over the next year external debt payments falling due amount to in excess of $50 billion, suggesting an external financing requirement of $55-60 billion. Foreign currency reserves at the central bank stand at around $35 billion, but declined by around $3 billion in September and individuals are reported to have converted around $6 billion into foreign currency in the year to date.

With the global economy slowing the danger is that metals (40 percent of exports) prices dip which when combined with structural rigidities in energy import prices suggests a significant terms of trade shock to the economy which could worsen the current account position still further. The question is will the crisis and its impact on Ukraine be as serious as 2008-2009, and are the authorities better prepared and more able to react this time around

Russian leaders are expected to visit Ukraine on Oct. 18, and the hope is then that some broader renegotiation of gas supply contracts can be agreed. The assumption is that without a gas price agreement the Yanukovych administration would need to hike domestic gas prices to ensure compliance with the existing IMF program, to ensure much needed IMF disbursement to cover holes appearing in the balance of payments and now even on the budget front.

Note that cynics argued that the case against Tymoshenko is being driven by a broader desire to undermine the legal basis for the 2009 gas price agreement.An added complication to the on-going dispute between Russia and Ukraine over energy pricing is that a $2 billion loan facility from a Russian state owned bank to the government of Ukraine falls due in December.

The tranche from IMF in October is essentially necessary to pay for the amount due to Russia in December. Fairly similar to what happened earlier btw.

It will be interesting to see how Russia's own electoral cycle plays into the challenges facing Ukraine. Will Putin's drive to retake the presidency in Russia in the election in March 2012 encourage a more adversarial or conciliatory approach from Moscow. Moscow does seem eager to build on the Customs Union between Belarus, Russia and Kazakhstan, extending this to Ukraine, but membership of the latter entity appears to preclude a FTA with the EU.

The unmentioned is that it would preclude WTO obligations as well. What people fail to realize is that since Russia is not in WTO it does not have to play by any of its' rules, sure it agreed to a lot of things but until it comes into force those things do not have to be followed.

2012 seems like the year when everything comes to a head. The market barriers go up since free trade agreements with Russia are getting scrapped in a sense by the EU-FTA, and even some WTO concessions.

Budget financing & debt management

The Treasury's cash balance is reported to stand at around Hr 30 billion, made up of foreign currency reserves of Hr 23 billion ($2.875 billion) and local currency reserves of Hr 6.8 billion.

Ukraine needs to raise around Hr 42 billion by the end of the year to meet its financing needs. Even assuming that it draws down its fiscal reserve this still suggests (all other things equal) that it must raise an additional Hr 12 billion. Clearly the financing position would be alleviated should the government opt to roll-over the Russian bank loan of Hr 2 billion (Hr 16 billion) albeit there is some concern as to the likely cost, and that a further and final 6 month roll-over would then see a major "lump" in external financing in the middle of 2012 given a Eurobond also falls due in the middle of next year.

Encouragingly, this week Ukraine borrowed Hr 860 million from local banks (mostly foreign owned) through a U.S. dollar indexed bond (indexed principal only), which offers investors gains in the event that hryvnia depreciates against the US dollar but no losses if it appreciates.

For 2012, the budget deficit is targeted at 2.5 percent, according to IMF methodology. Therein there is an expectation of privatization receipts of Hr 10 billion, coming mostly through sale of energy sector assets. Given the challenges on the budget financing front key privatization might be fast-tracked, albeit at the price of likely much lower investor interest/bid prices. As in the past this could leave the government exposed to accusations that it sold the family silver too cheaply; memories herein of the last Yanukovych administration dating back to 2003/04.

In 2012, in addition to funding the budget deficit, Ukraine will have to refinance domestic debt redemptions of Hr 44.2 billion and external debt redemptions of Hr 14.2 billion, for a total of Hr 58.4billion.

Balance of payments

The current account deficit is expected to widen to 3.5-4 percent of GDP in 2011 and perhaps 5 percent of GDP in 2012. Short term debt and medium and long term debt liabilities falling due over the next year amount to around $53 billion, suggesting an external financing requirement for the year ahead of as much as $60 billion.

The NBU estimates that net FDI could total $5-6 billion in 2011, and as much as $7.5 billion in 2012. This seems unrealistically high for 2012, albeit $4.5 billion had been received in the year to date as of August. Most foreign portfolio funds are thought to have exited Ukraine in recent months, and the existing stock is hence modest.

There had been a reported $6 billion in retail foreign exchange purchases over the first 8 months of the year, while September is reported to have seen a $3 billion drawdown in foreign currency reserves, taking the stock of reserves down 8.3 percent in one month to $35 billion. Further downward pressure on reserves is expected. Note that in 2012 the NBU has to repay $3.2 billion in funds provided by the IMF. Foreign currency purchases earlier in the year are thought to have been driven by concern over currency weakness in neighboring Belarus.

Given the large external financing needs for the year ahead, risks of a marked downward correction in the economy, limited foreign currency reserves, and the weakening foreign currency bias across the region, we assume that the NBU will look to allow more (downside) foreign currency flexibility. It will though look to manage reserve loss against the scale/pace of the foreign currency depreciation and potential risks to the banking sector via deposit flight.

Our expectation is that the hryvnia ends the year in the range of Hr 9-10 relative to the U.S. dollar.

Last time the devaluation happened it went from ~5 to ~8-9 then got pushed back to 8, about ~40% devaluation. The situation this time around seems far worse. Requirements by IMF to hike domestic consumer gas prices from +30% to +50%, if performed, does not bode well. Payments and roll-overs and the completely unrealistic FDI projections seem to ignore a very simple proposition. What happens when the IMF loans come due and there is no money to pay em? Russia will get their money either through cash or assets in lieu of debt, but the IMF seems oddly focused(judging by their actions) on creating an insolvency.

The $53 billion dollars coming due over the next year is a bit much. Perhaps by mid-year if it goes in chunks they could default. What could speed it up is the FDI (which is to some degree mostly oligarchs re-investing their capital into their own enterprises that is held offshore in dollars). In January the tarriff barriers with Russia go into effect, overall repatriation of turnover will have to go either to a different country or remain in Russia. I think this will impact "FDI" the most in addition to the general populous going into a "run on the bank" mode to get whatever savings they have out into dollars by virtue of "administrative reforms" creating barriers for foreign exchange transactions which will get reversed but the damage being already done.

Fundamentally the question is how would that money get repaid and/or rolled-over?
I assume the following that at least half of those reserves are clearance transactions, ergo I sell steel to a foreign country get paid through a bank in the banking system, those dollars were converted and paid out in hryvnas for capital, labor, etc... If I sense that there is a devaluation coming the clearance gets shifted for a later period and the insolvency gets closer, since other clearers in the system which would be provided liquidity by your transaction are bunched up to do either the same if they are exporters or pay in hryvna if they are importers to shift the exchange risk.

Food/machine products exported to Russia and steel that goes out globally are around 60%+ of all flows. Say 30 billion to be generous, 2.5 bil per month roughly, what happens if clearance goes down by 25% if tariffs make it more economical to clear elsewhere? wouldn't forex reserves go down by 25%, at least gradually?
About $10 billion is expected from privatizatons. There is only one card left and that is the sale of gas-transport-system, but how much would be possible to get for it? in light of necessary improvements of about 1.5 bil at least? Realistically its possible to get 10-15 billion but still doesn't bridge the gap.
35+(10 or 15) (not counting anything in the current year)... this assumes no outflows on the part of forex anywhere else, not for clearance, not for populous etc... very unrealistic. If we figure 1 billion a month for 6 months thats 29+10 or 15 ergo a 53- (39 or 43) a shortage of 15 to 10 billion...

What about the other 40 billion of trade flows to Europe and other non-Cis countries... Absolutely right, but there is no balance the outflow is higher so for every dollar(euro) of commodities out of Europe two dollar(euro) leave there.
Ukraine has shown negative results in trade — BlackSeaGrain - All information on agriculture and food industry

Essentially Ukraine needs to roll-over at least half of their debts to avoid insolvency, preferably before a 1/3rd of the year passes. I find it unlikely.

Months/Ex-IM/Imf debt maturing
jan -254
feb -341 -686
mar -771
apr -396 -28
may -219 -680
jun -390
jul -922
aug -1177 -1050
sep -975
oct -1436 -422
nov -1103 -1057
dec -1355
total -9339 -3923


about 4 billion in IMF outflows in 2012 and 6 in 2013
the Export-Import deficit is for 2010 and is higher this year...
reserves are around $35 billion and population exchanged around 1-2 bill a month for safety lately. (this is all very very very rough)
Äåðæàâíà ï³äòðèìêà óêðà¿íñüêîãî åêñïîðòó
Financial Position in the Fund for Ukraine as of September 30, 2011
(part 6, in SDR so you have to convert to US dollars)

There is a lot of private debt that matures next year short term but some of it is actually government debt by wholly owned government companies (Naftogas, Ukranian Rail Road etc...)

Kyiv Post. Independence. Community. Trust - Opinion - OP-ED - Ukraine: racing against time

Prices for metals this year so far dropped about ~15% 40% of Ukraine GDP is metal product related.

I read something very interesting in the Kommersant.ua newspaper.
Google Translate
In essense there is contention between the Central Bank and Commercial Banks they are choosing to put their dollar deposits in offshore (London) instead of exchanging them for Hryvna at the given exchange rate given by the central bank 7.97 or so, instead some are buying NDF(non-deliverable-forwards) at 8.42 on the exchange etc... Thus far they have around 9 billion dollars outside in cash waiting for either the exchange rate or simply using them to get higher returns rather than give them to the central bank (which is desperate for dollars etc...)

The other interesting thing I read is that this year Ukraine shipped about 39 million tons through the rail road which is rapidly recovering. However about two-three years ago it shipped 70 million tons and then it rapidly declined. Partly due to the crisis, partly due to customs procedures and beuracracy, partly due to Russia building port capacity to bypass the rail-port transit through Ukraine. Around 70% of all goods shipped on the rail come from Russia etc...

Guess I was wrong about November 22nd being the big day when people go out into the streets. A lot of it had to do with conciliatory behavior on the part of gov't towards small businesses which are somewhere between 3-7 mil in the country (IT people who contract, Taxi drivers, Lorry drivers, etc...) But the other people Afghan veterans and Chernobyl survivors aren't happy because their payments are stalled or cut some are on hunger strikes etc...
Ukraine - Radio Free Europe / Radio Liberty © 2011

The big thing is the IMF hasn't given any money when it left on Nov3-4, and the negotiations with Russia continue over gas etc...

Bargaining position has become even worse since Russia not only put in Nord Stream but closed on purchase of Belarussian gas transport system a few days ago. Ergo more or less 60 BCM transit secure to Europe, and if Belarussian system is a bit upgraded perhaps a bit more.

Central bank and Commercial banks are still squaring off with the later holding about $10+ billion offshore and not converting into Hryvna through the central bank and the Central bank not injecting Hryvna liquidity into the banking system. The Central bank is trying to sterilize the dollars through itself to prop-up the Hryvna but it seems to have failed in a sense so it is resorting to holding the domestic system in reign by creating an artificial hryvna shortage. My guess is, all this does is make the forex overhang larger since transaction wise people have no problem using dollars or rubles and only bank loans denominated in Hryvna become less liquid.

There is a twitch of reform from the government very low likelihood but if they do it there might be a saving grace for them in the elections. One window bureaucracy to reform herding people from place to place to get stamps of approval from various agencies (ergo necessity to bribe at every stamp). Doubt it happens though. Another interesting thing is they are mentioning federalization here and there. Federalization is in essence devolution of federal powers to regions and a quasi confederacy since taxes wouldn't be cycled through the center as much. Also low probability but could happen prior to elections to insure that new powers would simply be figureheads and real powers would reside in the center.

But a lot of "reforms" maybe for the worse and will drive further unpopularity of the current gov't. Thus far every gov't was pretty bad and this one is no exception.

Also elections were reformed to have 50/50 direct/party lists electability of candidates. Ergo 50% are elected directly from a place and 50% are voted on through the party lists. (At least that is how I understand it.) More or less favors the current party but their popularity is horrible at this point. If you do
Administrative divisions of Ukraine - Wikipedia, the free encyclopedia by population out of top 10 , 7 are in the south east. Kiev and Kiev Oblast and Lviv Oblast are the other 3... Technically elections will change nothing even if different parties get elected the whole dynamic revolves around oligarchic groups whom benefits by what etc... Bankers are out Industrialists are in to some degree, although both had banks and industries.

There is some preparation for the insolvency and devaluation of hryvna but thus far none of the catalysts to make it happen are yet present, ergo actual insolvency and illiquidity of the banking system.