Geopolitical impact/outflow if Ukraine Defaults

[cyppok]

very short update.

Interbank went to ~8.7 Uah to 1 Usd
Official rate is still ~7.99 Uah to 1 Usd

Highest interbank volume of dollar sales EVER!("in the history of Ukraine")~$20billion Usd sold in the last week.

Ukraine president, back at work, warns radicals | Reuters

Having lent Ukraine $3 billion of the package so far, Moscow suspended a further tranche of $2 billion, saying it first wants to see who Yanukovich appoints as prime minister.

If this is true then I understand what is going on. It is a dare for bankruptcy from Eu, Russia just called the bluff. Theoretically if they call in the Naftogaz debt then Ukraine is bankrupt right now. My sense Eu overplayed political/monetary support for the opposition thinking that it would benefit even if Russia bails out Ukraine because rescinding would force bankruptcy they were wrong.

Someone has to give in, literally within days. Mid-Feb I sense is the point of no return.

Like I said at the start of the thread right now bankruptcy is no longer an if but when and how by whom and for what purpose. With the impact outflow in different markov-chain reactions.

[Minskaya]

Sooner or later the whole monetary house of cards will come tumbling down. Perhaps then all Ukrainians will realize how bad things are and demand universal reforms. A nation this large and blessed should never find itself on the verge of insolvency.

[cyppok]

Sooner or later the whole monetary house of cards will come tumbling down. Perhaps then all Ukrainians will realize how bad things are and demand universal reforms. A nation this large and blessed should never find itself on the verge of insolvency.

insolvency has nothing to do with being large or blessed with natural resources.

it has everything to do with spending more than you make, even 'honest' countries can have severe meltdowns when they do this. (Sweden is a good example in not so recent history)

So far all reforms that occurred were for the worse, starting with the Yuschenko getting rid of small business flat tax then bringing it back creating limits and it being ratcheted up to disallow most use over time through into Yanukovich gov't. Everyone wants power screaming populist slogans and promises, once they get there its' another story.

The problem with constant devaluations is that sooner or later your own people stop using your own currency like in Latin America where some countries are fully dollarized. The other thing is that savings rates and returns both become higher hurdles for start-up enterprises(and ongoing) since you have to factor in price flux far more, yet your margins due to all the excise taxes and overhead are far less. Especially if you have multiple settlement points which reprice and/or can become insolvent due to financial system or political impact.
(Ukraine did go from 3-3.5-5-5.5-8-where to next?)

Uah is at 8.8 according to kommersant.ua today.

[cyppok]

BNP Warns "The Run On Ukrainian Deposits May Have Already Started" | Zero Hedge

9...

BNP Warns "The Run On Ukrainian Deposits May Have Already Started"

Hryvnia Falls to 5-Year Low as Ukraine Defense of Currency Slips - Bloomberg

The hryvnia lost 2.5 percent to 9 per dollar, the lowest intraday level since February 2009, by 4:27 p.m. in Kiev, the capital. That extended the slide this year to 8.4 percent, the most worldwide after Argentina�s peso. Ukraine�s currency will probably fall to 10 per dollar by year-end because of the change in central bank policy, according to Bank of America Corp.

You know my estimate is a wee bit higher than that.
Ukraine Opposition Gives Yanukovych Warning as Currency Rattled - Bloomberg

Reserves (UAINRSL) probably shrank to $18.8 billion in January from $20.4 billion a month earlier, according to the median estimate of seven analysts surveyed by Bloomberg before the central bank publishes the data by Feb. 10. That would tie November for the lowest level since 2006, before the Russian bailout.

The dwindling war chest and collapsing hryvnia are a risk to Ukraine�s financial stability, according to Fitch Ratings. They also threaten to intensify a selloff that has made the nation�s bonds the worst-performing in Europe this year, even after a rebound in the last two days amid speculation an aid package may be forthcoming from the European Union and the U.S.

I am not going to get into details but to be fairly simple. They owe (just the gov't mind you)

Ukraine faces almost $17 billion of debt payments in the next two years, according to data compiled by Bloomberg.

.
The problem is thus it not only matures in large chunks and soon, but you also have 'other' debt like corporate debt doing the same, in addition to gov't trying to issue even more (and doing so recently, when they got the 3 billion from Russia they also issued a few billion more into the market when it was stronger due to bailout perception).

Lets say another 600-1 billion for gas per month net/net outflow and 600-1 billion (although it is probably closer to 2+ billion now) intervention in the form of selling USD at official rates to banks whom sell it to customers so that those could pay their dollar loans or hoard them in anticipation of the devaluation. Notice the self-fulfilling prophecy angle?

Anyhow last but not least the wonderful budget spends ~$20 billion a year more than it takes in. So monthly outflows go from 2-5+ depending on where maturities fall. Excited yet?

[cyppok]

"Fk the EU" youtube

"Fuck The EU" - US State Department Blasts Europe; Revealed As Alleged Mastermind Behind Ukraine Unrest | Zero Hedge

A leaked recording of a telephone conversation allegedly between US assistant secretary of state Victoria Nuland and the US envoy to the Ukraine, Geoffrey Pyatt discussing who should be in Ukraine's next government has, according to The FT, threatened to fuel east-west tensions over the troubled nation's future. In apparent frustration with the EU – which has failed to join the US in threatening sanctions against Ukraine’s leaders if they violently crush the protests – the voice resembling Ms Nuland at one point exclaims "Fuck the EU". As the two US diplomats decide whether "Klitsch" or "Yats" should be 'in' or 'out', listeners will be reminded (uncomfortably) that the governments of Ukraine and Russia previously alleged that the protests are being funded and orchestrated by the US.

Needless to say, as the FT adds, "[this clip] could also bolster a propaganda campaign by the governments of Ukraine and Russia alleging that the protests that erupted against Ukraine’s President Viktor Yanukovich last November are being funded and orchestrated by the US." Its release on the day the Sochi Olympics start is also somewhat disturbing.

I find this hilarious especially since it is probably true.

[cyppok]

"Fuck The EU" - US State Department Blasts Europe; Revealed As Alleged Mastermind Behind Ukraine Unrest | Zero Hedge

I find this hilarious especially since it is probably true.

By the way the reason I posted this ties to the first page.
The number three on first page where I mentioned that after US & EU crack down on the gov't by blacklisting it the gov't in turn will retaliate first to eliminate threats from within then from without.

Notice the US drive towards sanctions and blacklisting gov't officials and the frustration with the EU not being on board to do the same. Nobody sees the outflow that if you do that and those officials are left with no-way out they don't lie down and drop dead but retaliate to make sure they survive by any means necessary. How hard is it to understand that???

The hryvna is frozen convertibility wise for the next 6 days lets say a week. This is way faster than I thought but they actually have payments due next week so I understand why. This is literally skirting the limit of default.

[Minskaya]

"Fuck The EU" - US State Department Blasts Europe; Revealed As Alleged Mastermind Behind Ukraine Unrest | Zero Hedge

I find this hilarious especially since it is probably true.

Apparently it is true. Can't say I disagree with Nuland. The EU seems to be stuck in first gear.

For all of his concern about the NSA, not a word from Mr. Snowden about this (presumably Russian) phone intercept.

[cyppok]

Apparently it is true. Can't say I disagree with Nuland. The EU seems to be stuck in first gear.

For all of his concern about the NSA, not a word from Mr. Snowden about this (presumably Russian) phone intercept.

you still don't understand my point.

If your bargaining position is to eliminate my bargaining power completely.
You cannot approach me pre-emptively and demand I do so because that is your aim.
[Do you realize how absurd this is at least? If the goal is to put opposition in power through pressure, if I put up the totallity of my action upon you today, you have 0 zero reason to comply with anything I want because you know the intention. Not only that all those moves have to be set-off against like a hedge.

You then reach a point where not only are you ignored at face value (at start of the argument) but even when you act those actions are simply a contest, because the negotiation is lost even before it started.

I repeat the ramifications from sanctions will not be pleasant, because not only is the end-point known, the government figures will not be able to go anywhere except defend themselves with the sovereignty of the country they control.
[its very simple really to grasp this]

[Minskaya]

Beyond the overall goal prying Ukraine from the Russian sphere, I don't think either the EU or US have a definitive road-map on how to go about this. Their responses post-Vilnius seem reactionary and ad-hoc rather than formulated and structured.

[MrSecond]

For all of his concern about the NSA, not a word from Mr. Snowden about this (presumably Russian) phone intercept.

I wonder, does mr.Snowden have anything to do with this phone intercept?

[Minskaya]

I wonder, does mr.Snowden have anything to do with this phone intercept?

I doubt it. His forte seems to be stealing data files via webcrawlers.

In other news, Ukrainian Olympic officials in Sochi stated yesterday that Ukraine continues to aggressively pursue its bid for the 2022 Winter Olympics which is eight years away. The city of Lviv would host the indoor competitions plus bobsled and luge. Skiing events would take place at the nearby Carpathian mountains. Other cities vying for the 2022 Games are Almaty, Beijing, Krakow, and Oslo. The IOC will drop two cities in July and I don't think Lviv will be chosen one of the three finalists with the present political turmoil and economic situation.

Although Ukraine would be a very good location for the Winter Games (plenty of ice and snow), I think it is better suited for the Summer Games. The Yalta/Alushta municipalities on the Black Sea would be perfect (my neighborhood) ;)

[cyppok]

you still don't understand my point.

If your bargaining position is to eliminate my bargaining power completely.
You cannot approach me pre-emptively and demand I do so because that is your aim.
[Do you realize how absurd this is at least? If the goal is to put opposition in power through pressure, if I put up the totallity of my action upon you today, you have 0 zero reason to comply with anything I want because you know the intention. Not only that all those moves have to be set-off against like a hedge.

You then reach a point where not only are you ignored at face value (at start of the argument) but even when you act those actions are simply a contest, because the negotiation is lost even before it started.

I repeat the ramifications from sanctions will not be pleasant, because not only is the end-point known, the government figures will not be able to go anywhere except defend themselves with the sovereignty of the country they control.
[its very simple really to grasp this]

??????? ? ?? ?????? ?????????? ???????? ??????? ? ????????? ?????????? ?????????? - ??????? ???????? ???????? ?? ?????????????? ??? ? ?? ? ?????????? - LB.ua
German minister threatens Ukraine sanctions - European News | Latest News from Across Europe | The Irish Times - Tue, Feb 04, 2014
European Parliament Calls For Targeted Ukraine Sanctions
Merkel and her party support sanctions against Ukranian gov't figures. So my guess even with the "F the EU"
'faux pa' the EU will get on board of the retaliation wagon.

This gets back to third aspect I mentioned.

[cyppok]

Hryvna Interbank more or less resumed functionality after freeze

It is around 8.70-8.90 on the interbank.
Гривня понизилась до 8,82 грн/долл. : Новости УНИАН

The Daily Bell - Washington Orchestrated Protests Are Destabilizing Ukraine

The protests in the western Ukraine are organized by the CIA, the US State Department and by Washington- and EU-financed Non-Governmental Organizations (NGOs) that work in conjunction with the CIA and State Department. The purpose of the protests is to overturn the decision by the independent government of Ukraine not to join the EU.

The US and EU were initially cooperating in the effort to destroy the independence of Ukraine and make it a subservient entity to the EU government in Brussels. For the EU government, the goal is to expand the EU. For Washington the purposes are to make Ukraine available for looting by US banks and corporations and to bring Ukraine into NATO so that Washington can gain more military bases on Russia's frontier. There are three countries in the world that are in the way of Washington's hegemony over the world � Russia, China and Iran.

I think the corporate goal is more inline with the EU than the US, because standards in EU/FTA are EU linked.

To me there is a bitter irony in all this wrangling. It is simply thus, in the end the economic market of possibilities and impossibilities will determine what happens in Ukraine.

If it joins the EU the collapse in industrial and overall economic well being (from today's levels which seems hard to believe) will make a reactionary sentiment possible and what you see today directed at Russia, may very well be directed towards the EU [for free[ so to say.
If it joins Russia the warped dynamics on the ground will create a need to crack down to keep the reverberation rebellion from spiraling out of control, and so long term split in society will be preserved or spirals out of control in the future.

If it stays frozen up as it is now, the simplicity of economic default vis a vis next two years payments due, delivers complete revelation in what should have happened quiet a few years ago, when the first tranches of IMF money were given to prevent it.

The orchestration of the �crisis� in Ukraine is easy. The neoconservative Assistant Secretary of State Victoria Nuland told the National Press Club in Washington on December 13, 2013, that the US has �invested� $5 billion in agitation in Ukraine. Victoria Nuland Admits: US Has Invested $5 Billion In The Development of Ukrainian, "Democratic Institutions" The crisis essentially resides in western Ukraine where romantic ideas about Russian oppression are strong and the population is less Russian than in the eastern Ukraine.

The hatred of Russia in western Ukraine is so dysfunctional that the duped protesters are unaware that joining the EU means the end of Ukraine independence and rule by the EU bureaucrats in Brussels, the European Central Bank, and US corporations. Perhaps Ukraine is two countries. The western half could be given to the EU and US corporations, and the eastern half could be reincorporated as part of Russia, where the entire Ukraine resided for as long as the US has existed.

This is the crux of the matter, join EU and become a complete non-entity as a sovereign, with governance and ability to function to fix things get buried in another top layer of bureaucracy.

So right now there is a third way being slightly edged into the political sphere. Not a new thing really but non-the-less, 'Federalization of Ukraine'.
A Ukrainian federation - or a Russian plot? | Europe | DW.DE | 03.02.2014
Yatsenyuk reopens PM question - Russia proposes federalization - Ukraine - News - Ukraine Business Online
If it's done like the Swiss it would be very good in my view but I doubt that will ever happen.

[Minskaya]

The Daily Bell - Washington Orchestrated Protests Are Destabilizing Ukraine

Roberts sees a CIA/Neocon/Zionist conspiracy everywhere, including the Iranian election protests of 2009-2010.

Victoria Nuland Admits: US Has Invested $5 Billion In The Development of Ukrainian, "Democratic Institutions"

Information Clearing House is well known conspiricist website.

So right now there is a third way being slightly edged into the political sphere. Not a new thing really but non-the-less, 'Federalization of Ukraine'. If it's done like the Swiss it would be very good in my view but I doubt that will ever happen.

Ukraine is already federalizing into east and west...

A Ukraine City Spins Beyond The Government's Reach - NYTimes

[cyppok]

No Min, I have never seen (direct) support for Federalization from Russia before that. I am not talking about politicians or parties here and their fake or unrealistic promises.

Not only that this is the first time I see open support to create an actual movement grass roots + political venue outside of the general political support for the establishment. Bear in mind they supported established politicians and their angles just like Europe and US but never outside of that venue.

The difference is very large even though to you it might seem meaningless. Direct movement creation implies that changes in politicians won't matter. This is what the EU/US did with the EU promotion of Eastern Partnership and EU/FTA in western Ukraine more or less.

Furthermore you have to realize if Federalization occurs you do not need Majority control. You essentially create a veto power by sub-unit, very similar to Switzerland I think.

But to get back to reality. Ukraine is almost bankrupt.
Whatever they agreed to get the Russian loan they violated so it is not getting disbursed...
Ukraine

Yields on Ukraine’s dollar bonds jumped to a record and the hryvnia slumped as politicians struggled to break a deadlock that stands in the way of the country receiving aid, either from Russia or the West.

The rate on the note due in June rose 147 basis points, or 1.47 percentage point, to 22.37 percent by 4:38 p.m. in Kiev. Ukraine’s currency depreciated 1 percent to 8.79 per dollar, extending the drop in the past three days to 4 percent, according to data compiled by Bloomberg.

While Russia has said it will put its $15 billion financing offer on hold until a new government is formed, the EU is ready to provide financial aid to a new Ukrainian cabinet, provided leaders are committed to rule of law and measures to strengthen the economy, Enlargement Commissioner Stefan Fule said yesterday after meeting Yanukovych in Kiev. The aid may be in the form of grants and loans, with a central role provided by the International Monetary Fund, he said.

“There are conditions,” Fule said yesterday. “I would call them reforms, reforms, reforms.”

By the time anything gets agreed to or approved, it will be way too late.