Ukraine's new debt of $ 3 billion: Is it good or bad?

Author : Oleksandr Okhrimenko

Why does the Ukrainian government borrow from foreign investors and is going to pay them interest, but does not want to offer the same to Ukrainian investors?
22:57, 25 September 2017

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112 Agency

We can congratulate the government of Ukraine on placing Eurobonds worth $ 3 billion at 7.35% per annum for 15 years. Or it is not necessary to congratulate? Is it a success or new problems for the Ukrainian economy?

To begin with, a few words about what Eurobonds are. For a long time already Ukrainian governments, due to placement of Eurobonds, covered the deficit of the state budget of Ukraine. But sooner or later Eurobonds have to be repaid. And now the government of Ukraine will need to pay off old eurobonds worth 1.6 billion dollars. Therefore, the placement of new Eurobonds was absolutely necessary. Otherwise, we would have to use gold and foreign exchange reserves. And now the government of Ukraine will issue debt on old eurobonds without any problems and will even increase gold and foreign exchange reserves by $ 1.4 billion. These are advantages. Moreover, you need to repay these eurobonds in 15 years. And this will surely be a headache for the future governments of Ukraine.

As for Eurobonds, everything is clear, but the question arises: why cannot you place the same state bonds not abroad, but in Ukraine for Ukrainian investors? Why does the Ukrainian government borrow from foreign investors and is going to pay interest to foreign investors, but does not want to offer the same to Ukrainian investors? Why we see such injustice?

According to the NBU, currently about 90 billion cash currency is circulating in Ukraine. Only for the period from 2014 to 2016, Ukrainians took from banks about 16 billion US dollars. It’s more than a solid amount. At the same time, banks are very poorly attracting deposits in foreign currency and do not want to pay fair interest. According to the NBU, the Ukrainian index of rates on deposits in US dollars for a period of 12 months is only 3.77%. Awfully small rate, compared to the money that the government of Ukraine pays for Eurobonds. Maybe authorities should stop proposing to earn only foreign investors; it's time to think about Ukrainians?

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It seems a simple idea, but it has a completely logical explanation and is possible for implementation. The government of Ukraine could issue treasury obligations in US dollars at a rate of 7% per annum for at least 3 or 5 years with payment of interest on a quarterly basis. These treasury bills are in fact analogous to eurobonds, but they can be placed on the territory of Ukraine for private Ukrainian investors. As a result, Ukrainians would be able to keep their savings in the treasury obligations of Ukraine and thereby invest in the economy of Ukraine. After all, at the moment Ukrainians do not want to carry the currency to the banks because of low rates, and this currency "lies in the nightstand." At worst, it is used to finance the "shadow economy". But it does not work for the real economy. And the government of Ukraine is borrowing from foreign investors.

Here they may object that eurobonds are more attractive than treasury obligations for the population of Ukraine. But then we need to mention another interesting fact: these eurobonds without special problems with the help of foreign brokers could appear on the offshore accounts of our people's deputies and mistresses of ministers. The result is a very fun business. The government of Ukraine will pay high interest on offshore accounts, thereby helping those "close to the emperor" to make good money on this, while the Ukrainian people will constantly listen words about the reforms and their successful development. Maybe this opportunity to use Ukrainian Eurobonds for offshore schemes has become a factor that stimulates the Ukrainian government to think more about the incomes of foreign investors than about the incomes of Ukrainians?

Paradoxes of our market. We always want to do something good and do it, but it turns out that the result is very strange and confusing, even when, at first glance, it seemed that everything was good and wonderful.

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