Ukraine is struggling with a plan to pay its creditors, and the International Monetary Fund has demanded a condition for further financial support. The cost of Russian aggression has been very high including leading the economy of Russia to a crisis and taking a terrible toll on the economy of new Ukraine. The ailing economy of Ukraine has made unsustainable to pay the country’s foreign debt pf $18 billion. There are, however, negotiations on how Ukraine can structure its debt that is underway in San Francisco.
The factors preventing Ukraine from obtaining further foreign debt is because it doesn’t have recourse to bankruptcy. Without chapter 11 for the sovereign borrowers, it ‘s hard to establish a cease-fire between the borrowers and lenders to decide which debts can be reorganized. The only strategy remaining for Ukraine and its private lenders is to negotiate in a setting that can “make things right.” In the current context, Ukraine’s only leverage is to threaten to default unless it gets a debt relief. In return, the bondholders have threatened the Ukraine government that they will not invest in the country for a long time in case of default.
Ukraine Deserves Debt Relief
Ukraine & Europe: What Should Be Done?
Europe understands that Ukraine’s default will be costly to Europe and will have long lasting effects mainly when the lenders drag out the battle as it happened for Greece and some of the Latin American nations. When negotiations for a deal between the country and its lenders is expedited, even if it causes a loss in some profit for the lenders, the country can get back to its feet in a year or two. Europe has to understand that it is not the default that keeps the country out of the markets, but the economic problems that lead the default in the first place.
In 1989, the Americas were faced with the same situation and the U.S. Treasury Secretary; Mr. Nicholas Brady had to unveil a plan that urged banks to accept relief for Latin American countries that are sensible with their reforms. Mr. Brady was worried about the savvy investors like George Soros, who would have looked into the future rather than the past and considered whether to lend the country. At the moment, the Ukrainian government is doing its best to ensure that it got the kinds of structural reforms development by Brady in 1989. The strategies include reforming the judicial system, rooting out corruption, weaning the country from Russia gas, and more.
According to George Soros Ukraine, the sanctions imposed by the West on Russia are not enough to get Ukraine out of the current crisis. Russia is already suffering a financial crisis like the one witnessed in 1998. The final blow to Russia and a winning strategy for Europe is to help Ukraine financially to ensure it can defend itself especially economically and militarily. European countries which are now going through a deflationary period. Injecting capital in the Ukrainian economy will help the country increase spending in the mega projects which will also increase the level of demand and spending in the country and in turn help Europe overcome the current crisis.
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