After an initial proposal flopped in parliament, Ukraine’s government in Kiev finally signed on to an $18 billion package from the IMF yesterday. An important milestone? Perhaps. But the real beneficiaries of all this money won’t be regular Ukrainians. Rather, it’s Western hedge funds and Russian banks that stand to profit most. The Telegraph:
There will be no haircuts for creditors under the deal, unlike the EU-IMF formula in Greece and Cyprus. This amounts to a bail-out for Russian state banks and Western funds accused of propping up the previous regime and for vulture funds that bought Ukrainian debt cheaply for quick gain.
Tim Ash, from Standard Bank, said: “Ukraine has been the ultimate moral hazard play and it’s cavalier to expect taxpayers to cover this.”Mr Ash said it has been obvious since 2011 that Ukraine was heading for the rocks, yet funds continued to snap up its bonds, betting that the country was “too big and geopolitically important to fail” and would always be bailed out in the end by Russia or the West.
There are precious few good cards for the West to play in this crisis—at least in the immediate term. And if policymakers are consoling themselves with the idea that in the long run, a cleaned-up Western-facing Ukraine is likely to prosper, they should remember that the cost of the clean up may be Ukraine’s unity as a state. The Financial Times:
Olena Bilan, chief economist at Dragon Capital, a Kiev investment bank, noted 60 per cent of Ukrainians told a recent poll they would accept “unpopular” reforms as the price of reorientating the country towards the west.But only 34 per cent of citizens in the mainly Russian-speaking east favoured tough measures. That is where suspicion of Kiev’s new government is highest – and where tens of thousands of Russian troops are on the border ready to intervene to “restore order” if needed.
The West is walking a tightrope here—a tightrope held on both ends by Vladimir Putin. And there’s not much stopping Putin from shaking things up at a time of his choosing.