Ukraine to service IMF debt by taking other loans

Author : Serhiy Fursa

Source : Facebook of Serhiy Fursa

IMF is the only source to support the Ukrainian economy during coronavirus-crisis
12:00, 13 April 2020

112 Agency

Default turned out to be a not very popular idea. People of oligarch Ihor Kolomoisky, trying to disrupt cooperation with the IMF, switched to a different format. Now they also say that default is bad, but restructuring is good. Rebranded. They offer that we need to look closely at our debts, choose the unimportant and refuse to pay them, calling it restructuring. Important debts, apparently, are debts to their patron Kolomoisky.

This is very bad advice. And let's understand why.

Actually, there are times when restructuring is a good solution. But there must be some other reason than a reluctance to pay.

Related: Ukraine to receive $4 billion from IMF after approval of banking law

Which countries do the restructuring? Those who have a very high debt burden and are not able to service their debt. For absolutely objective reasons. What do we have in Ukraine? In Ukraine, over the past four years, the debt burden has been significantly reduced. If we started 2017 with a debt of 80% of GDP, then in 2020 we entered with a debt burden of 50% of GDP. This decrease is almost 2 times. Thus, our debt is absolutely under control.

What debts are being restructured? Debts to the investors. The so-called market debt. The debt that is attracted through the issuance of bonds. And here's the catch. In Ukraine, this debt is not that high now. We just have nothing to restructure. This year we would have one big payout of $ 1.4 billion in September. And now, payments to investors do not exert any pressure on the budget or on the accounts of the Ministry of Finance. Because they simply do not exist. We might scare off all our partners, and it would make no sense. If the crisis develops, if everything gets worse by September, then we can talk about restructuring. And investors will understand this. But certainly not now. And certainly not because of the keen desire of one oligarch to disrupt cooperation with the IMF. All our other debts are debts to the American government ($ 1 billion in May) or official lenders. And we just can’t pay them. Especially at that moment when we are urgently asking them to support us.

Related: IMF expects Ukraine to adopt law on banks and changes to 2020 budget

What do proponents of the default sect talk about? Ukraine should pay half its budget on debts this year. And, of course, they find support, because people think that this year the budget should be spent on supporting the economy, supporting those who lost their jobs as a result of quarantine, supporting small and medium-sized businesses, and not giving money to the bourgeois. What's the catch? The fact that the budget does not contain the line of 50% debt repayment. This year Ukraine has really been waiting for and is still waiting for peak payments on foreign debt. But these payments are never budgeted. Debts are always repaid in all countries by attracting new debts. And Ukraine is no exception. Nobody includes the repayment of loans in the budget.

Thus, everything that we give this year to the bourgeoisie, we will attract from this same bourgeoisie. But the trick is that this year we must take much more money from the bourgeoisie. Not only to give money to the bourgeoisie. But also to finance measures to save the economy from quarantine. This year, the budget deficit in Ukraine will grow by more than 3 times, up to 7.5% of GDP. In ordinary years, this would be called insanity. But 2020 is an unusual year. In this way, all the EU countries and the United States suffer from a budget deficit sharp increase. There is simply no other way. You cannot minimize the loss from quarantine. We need to attract all this money, to medicine and to help business. And we have nowhere to take them, except on credit. If we decide to print them, then tomorrow's printed hryvnia will not cost anything. Therefore, you need to attract debt. In currency.

Related: IMF Head speaks on current state of world’s economic crisis

And the IMF is the only source to support the Ukrainian economy. And now the situation is that the people of Kolomoisky are telling that let's not give back $ 10 at a time when we need to borrow $ 20. They are hinting that you won’t have to lend $ 20, because part of it would be used to repay your debts. And the second half you need in order not to die today.

This budget deficit is a one-time event. Next year, it would be gone. All costs for which the money is directed are associated with quarantine and the virus. As already mentioned, in the past three years, Ukraine has significantly reduced its debt burden. And today, in emergency conditions, we can afford to increase our debt, which at the end of the year can reach 60% of GDP.

Related: Zelensky's representative, US embassy discuss Covid-19, Donbas, cooperation with IMF

But a stupid evil here is to start a restructuring, bashfully covering it with the word "default," which is needed only to prevent a couple of oligarchs from answering for their dark deeds. And the oligarch, along with his faithful servants, is ready to put everything at stake. Including the economy of Ukraine. And helping him in this is not the worthiest occupation.

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