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Ukraine is sliding towards default, experts say

February 10, 2014, 17:18 UTC+3 Zamyatina Tamara
© ITAR-TASS/Maxim Nikitin

MOSCOW, February 10. /ITAR-TASS/. Ukraine’s national currency, hryvnia, is slumping. On Friday, February 7, Ukraine’s National Bank lifted hryvnia’s fixed official exchange rate, and the currency lost 9% within just one day.

Since 2010, for over three years, one dollar cost in Ukraine about eight hryvnia. Already by February 2014, the exchange rate grew to around nine hryvnia for one dollar.

Under these circumstances, the Russian government has suspended the transfer of the second $2 billion tranche in assistance to Ukraine. Russia’s Finance Minister Anton Siluanov says Russian authorities cannot understand who to contact in Kiev as the government was dismissed there.

Russia’s President Vladimir Putin and Ukraine’s President Viktor Yanukovich on December 17, 2013 agreed Russia would credit Ukraine with $15 billion. The first tranche made three billion, and two more billion were due by end of January. The loan’s purpose is to avoid devaluation of Ukraine’s currency.

Ukraine’s overdue payments for supplied Russian gas worsen the complicated situation. “We are waiting for the Ukrainian side to fulfill their obligations to settle the gas payments. The money is not little there. We are speaking about $2.7 billion. The payment was due before January 25, but has not been done yet,” Siluanov said.

Clearly, Ukraine will not do without outside financial support. Both Russia and the West say they are ready to help Kiev, but for that the government in Ukraine should be formed.

“Evidently, Russia cannot allow itself another tranche to Ukraine until our neighbors do not have progressing stable political situation,” head of the strategic analysis department at Vnesheconombank Vladimir Andrianov said.

“It is complicated to forecast what Ukraine’s new government may be like, whether it will focus on cooperation with Russia. Further tranches to Ukraine depend both on this and on the timing for parliamentary and presidential elections in Ukraine,” the financial expert said.

“The West, represented by the International Monetary Fund, would not offer any loans to Ukraine. The US and IMF would arrange a deal to make sure the government is headed by their protйgй,” Andrianov said.

“Ukraine is facing fully the threat of a default. The country’s financial-economic situation is extreme. Dramatic consequences will follow shortly,” a representative of Vneshtorg’s supervisory council, Sergei Dubinin, said in an interview with Itar-Tass.

“The West made a mistake wanting to win Russia over the argument for Ukraine, for its association with the European Union. For Ukraine, as I see it, the way out may be found if countries supporting Ukraine could have a conference like Geneva-2 to adopt a common solution how to help out the Ukrainian people. A conference of the kind could feature the US, the EU countries, Ukraine, Russia and some CIS countries,” Dubinin said.

“Russia should undertake everything possible to temper the situation in Ukraine, to bring the conflicting parties to the table to organize the government. Ukraine faces the threat of a split. This scenario will not benefit anyone and it is necessary to use every opportunity to avoid it,” advisor to the UBS bank Yuri Kobaladze told Itar-Tass.


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