Geopolitical impact/outflow if Ukraine Defaults

[cyppok]

I may be a bit wrong on the numbers in Soviet Assets vis a vis Ukraine. Overall Ukraine will still owe money if it pursues that alternative. International Stockholm Arbitration Court more or less ruled on part of that angle a while ago. You can't simply claim something for which debt was outstanding that you did not pay off, if someone pays it off for you implicitly taking over your responsibilities and you acquiesce you give up the right to assets. Unjust enrichment comes to mind.
(older story but gives some perspective if 1993 portion of debt was $13.5 Billion just do some hypothetical math at 8-9% which would have been the rate up until now, now assume their claim of 16% of assets even if those assets are $500 billion dollars today and you see the irrelevance of the claim, you also have to remember that some of those assets were devalued[sberbank deposits in rubles])

The most worrisome news I have seen is this.
Яценюк выступает за налогообложение доходов с депозитов, которые превышают 50 тыс. грн | Новости политики | РБК-Украина
Attempt to tax Ukrainian deposits over 50k hryvna. This type of moves usually permiate down and all deposits will be subject to some tax. It forces deposits out of the system by both top/bottom participants.

If they eventually do a "bail-in" or robbing of depositors in regular terms, we come to the end and chaos of whatever semblance of disorder in Ukraine now will get far far worse.

Ukrainian Air force is conducting drills and exercises below.

[Parihaka]

How much is it going to cost to build a bridge over the strait of Kerch, along with the power transmission lines and water supply? How much to put a new pipeline for gas transmission to western Europe? Through which country would that go?

[cyppok]

How much is it going to cost to build a bridge over the strait of Kerch, along with the power transmission lines and water supply? How much to put a new pipeline for gas transmission to western Europe? Through which country would that go?

1.5 to 3 billion was the number somewhere. My guess it is around ~2 bil because they are building a bridge that is 3km(46 rub/1.3bil) and this one would be 4.5km.

Pipeline is actually very cheap 12 km to nearest gas pump station. But that is not necessary.
Chernomorneftegaz supplies all gas needs and enough for export from shelf platforms etc...

They could build a nat-gas combined cycle plant or simply expand existing ones for more electricity. But it doesn't make sense they could simply continue paying Ukraine for electricity/water needs. They could survive if those are cut off.

[MrSecond]

There are two gas pipe-lines except for Ukrainian gas transmitting system that deliver Russian gas to Europe. They are North Stream which goes on the Baltic Sea bottom to Germany (capacity - 55 billions cubic metres) and Yamal-Europe (33 billions cubic metres).

Gas transit through Ukraine is constantly decreasing: in 2007 that was 115 bcm, 2011 - 104 bcm, 2012 - 84 bcm, 2013 - 80 bcm. Reducing gas transit through Ukraine is a key point of Russian policy of last years, as there were big problems with stealing gas by Ukraine and its unability to pay for delivered gas.

South Stream - the pipe-line under construction. Goes though Black Sea. Project capacity - 63 bcm.
Europe consumes about 130 bcm per year, so after taking South Stream in order Russia almost will cover the European demand and get rid of Ukrainian transit blackmailing.

[cyppok]

Mish's Global Economic Trend Analysis: Ukraine to Impose Wealth Tax on Deposits; Run on Ukrainian Banks Coming?

Moral of the Story

Here's a hint, if you see capital controls, figure a wealth tax confiscation will soon follow. And here's the moral of the story: If you think capital controls may be coming, get your money out of banks now.

I more or less came to similar thought process. Once you have capital controls, then you have a "tax" and that "tax" becomes "bail-in" which is basically robbery of deposits.

[cyppok]

China Takes Sides: Sues Ukraine For $3bn Loan Repayment | Zero Hedge

China is also owed $3bn, it claims, for loans made for future grain delivery to China. It would seem clear from this action on which side of the 'sanctions' fence China is sitting.

In 2012, The State Food and Grain Corporation and the Export-Import Bank of China agreed to provide Ukrainian corporation loan of $ 3 billion, which was planned to be on the spot and forward purchases of grain for future delivery to China.


Minister of Agrarian Policy and Food of Ukraine Igor Schweich confirmed that China has filed a lawsuit against Ukraine in a London court for the return of a loan of $3 billion.

So it comes. Not sure if Ukraine got enough money to carry them over March 30th, possibly as long as it was wired for maturity payments straight away. Because now it is increasingly likely future intervention to keep IMF debt from coming due is more and more problematic.

In February 2014. the current Prime Minister of Ukraine Yatsenyuk said that "location $ 3 billion is not found."

While China has been relatively quiet in the background - though abstaining from the UN vote waqs a clear signal of relative support for Russia - this is a meaningful step in the direction of pressure against the West, as yet again, any bailout funds would flow straight to either Russia (gas bill sor callable bonds) or China (agriculture loans).

My sense is that raiding of the financial system will commence fairly soon. Ergo the central bank will take over financial system reserves/equity and upload it to the gov't which will promptly spend it onto the upcoming payment due. This will essentially cripple the financial system and you will have no liquidity for settlement(transactions). Barter economy comes somewhere there.:fish:

[Goatboy]

Cyppok. Are you aware of the EU/Ukraine landmark assosciation agreement signed yesterday? In other words, Ukraine is waving bye bye to Putin, wait, let me rephrase: Judging from how hasty pen was put to paper, I'd say Ukraine is giving Putin the finger. Have you seen any cumulative EU financial effort as forthright and universally supported as this signing recently? Who cares about some loans for repayment to China. Who cares about anything short term? The Ukraine has opened itself to the West.

A united financial/legal effort by the EU, when shit is at stake (which everyone in the EU thinks now), is about as powerful a financial (and hence societal) force as is possible anywhere on the planet in the long run. Many make the mistake of misjudging this. Ukraine's lying there prostrate saying "Help me!" "Save me from the bear!". And that's precisely what's happening, only in EU eyes it's masquerading as "help me, and you'll enhance your security too!" Watch how fast common concerns (Putin's aggression) dissolves fences separating Portugal and Stockholm from Kiev.

Give it 10 years, and you'll see it's ready for accession to the EU (a guarantor of physical protection second only to NATO). Then it's another Poland -- growing, changing, Westward thinking -- right where Ukraine used to be. Sorry Putin, you lose. But by that time, we all know in our hearts that Putin's successor will be more willing to accept realities, because he'll be force to be, because the preponderance of national power lies West of Moscow. Even Putin himself might feel forced to accept Ukraine's EU marriage -- unless he's planning to use tanks....

[cyppok]

Your kidding me right?

10 years huh. It has 3 months at most, probably less than 8 days.

Poland received infrastructure and other infusions over the past 20+ years in the amount of tens(10-20+) of billions of euro per year. In the form of grants...

You have two aspects you completely ignore the ideological component in that half of Ukraine (at least) does not want this vector of development not just due to cultural ties but also economic ties to Russia which the Eu agreement jeopardizes. But the overall sustainability of performance under such an agreement over 10 years.

[Goatboy]

Your kidding me right?

10 years huh. It has 3 months at most, probably less than 8 days.

Did you read what I said? I said: Give it 10 years, and you'll see it's ready for accession to the EU. And you said It has 3 months at most, probably less than 8 days?. This sounds like a misread, did you mean something else?

Poland received infrastructure and other infusions over the past 20+ years in the amount of tens(10-20+) of billions of euro per year. In the form of grants...

You think grants is why Poland is successful? Ukraine received grants too (guess from where), although not as much.

You probably think Germany succeeded economically post WW2 exclusively because of the Marshall plan grants and loans? (a common misconception). In fact Germany received only slightly more $ than the Netherlands, and far less than France and the "less destroyed UK". Economic aid merely helped, but was not the main cause of economic prosperity, same with Poland.

You have two aspects you completely ignore the ideological component in that half of Ukraine (at least) does not want this vector of development not just due to cultural ties but also economic ties to Russia which the Eu agreement jeopardizes. But the overall sustainability of performance under such an agreement over 10 years.

Really? The EU association agreement signed yesterday says different. And Russia's embarrassing flout of International law, and post WW2 precedent, shoved Ukraine - the whole damn thing unless Russia invades -- towards the EU.

[zraver]

Russian action in the Crimea also unlocked Chinese claims in Siberia and Japanese claims as well. Hell if Russia isn't careful she might be facing the loss of oblasts in the western part of the county in a couple of decades.

[ajhax]

Hell if Russia isn't careful she might be facing the loss of oblasts in the western part of the county in a couple of decades.

Who would challenge Russians? Apart from China, I can not contemplate any Russia's neighbor which can militarily grab land from Russia in coming decades?

[cyppok]

News Report - Ukraine virtually bankrupt, the quasi-fiscal deficit of the country reached 500 billion hryvnia - Yatsenuk | News

Ukraine is practically bankrupt, the quasi-fiscal deficit of the country reached 500 billion hryvnia - Yatsenyuk

(~$50 billion)

I think we have between 3 days and 3 months left until settlement is frozen. Once that happens the country is insolvent and aid does not reverse bankruptcy simply reorganizes it. I think they should have defaulted a while ago.

The IMF deal could be looked at from 2 points of view. One is the fiscal coverage of today to extend default into the future while gaining economic control over structural reform. Two is the fiscal coverage of tomorrow to refinance and re-organize debt post-default gaining same economic control over structural reform.

It would be easier to do the second aspect because the overall debt burden would be far lower if you write-off private holders of ukranian debt like bond funds and banks and only leave the institutional-quasi-governmentals like IMF/Wb.

Another aspect of functional liquidation and privatization of all gov't held enterprises would be easier in the second scenario as well since asset prices would collapse.

The nuance from the flow perspective is that all those goods producers would have to suffer through a clearance shock or at the very least clear externally which most of them probably do already. Metals, grain, sugar, etc... They would still bear higher tarriff costs from electricity, diesel, and my guess other licensing.

One event that could completely destroy all of this is transit/export closure. This could be achieved several ways. Russia could blockade all of Ukranian ports. Port/rail facilities in Ukraine could have massive strikes due to wage stoppage or insolvency clears. I think the second is likely especially in light of unknowns such as export licensing and tarriff rates for shipping (to the outlet). For ex: if grain per ton is 300 on world market and cost is 220 the export license should be way below 80 because it has to take into the difference both the shipper and receiver costs in addition to quality on world market. I have this feeling that once the supply/distribution chain breaks you have a backward wave of 'let it rot' which won't allow things to clear, export, transit, etc... Ancillary aspects like costs of fertilizer due to gas hike impacting grain yields and the overall economic instability may create very warped incentives.