Fundraising for Kiev

February 25, 2014

If the hastily drawn up timetable is adhered to an interim Ukrainian government will be formed today. Whatever the line-up, it is likely to repeat its urgent call for aid.

The West, led by the EU, is trying to drum up support – Brussels has already talked with Japan, China, Canada, Turkey and the United States on possible help — but the signals are that big money will only flow after May 25 elections when a permanent government is in place. Can it wait that long? The IMF adds that conditions it imposed on a previous loan offer would still apply, strings that it would be tough for any government in Kiev to meet.

Russia’s next step is the great unknown question but it seems safe to presume that the $12 billion outstanding from its $15 billion bailout of Ukraine will not be forthcoming, at least for now. There is also the prospect of the cut-price charged for its gas zooming back up.

Even so, the assertion of Ukraine’s head of state that his country was only two weeks away from default looks unduly alarmist. Oleksander Turchinov said $35 billion would be needed over the next two years.

Ukraine has around $6.5 billion in foreign debt payments to make before the end of 2014 and needs a further $6.5 billion to cover its current account deficit, while it is also $1 billion in arrears to Russia for gas supplies, according to Commerzbank. Goldman Sachs reckons that currency reserves are down to $12-$14 billion, a sum which its obligations could wipe out, leaving nothing in its arsenal to defend the currency, which tumbled yesterday.

Kiev must repay a $1 billion eurobond in early June and the government has also guaranteed a $1.6 billion eurobond issued by state energy company Naftogaz, which falls due in September. But it doesn’t look like there are any unpayable bills in the short-term.

The fact that Ukrainian bond prices climbed yesterday and the cost of insuring its debt against default fell showed the financial markets, at least, think the chances of default have receded since Yanukovich’s ouster. That could yet be a heroic assumption.

Moscow has been talking tough but Vladimir Putin, the man who counts, has so far remained silent. Moscow said it would not deal with those who led an “armed mutiny” against Viktor Yanukovich, who has fled and is now indicted for mass murder, and said it feared for the lives of its citizens in the Russian-speaking east and Crimea. It could cut gas supplies, an ugly scenario for Ukraine but less so for the EU which has healthy stockpiles after a mild winter and is less vulnerable than it has been in the past.

The European Commission will produce its latest economic forecasts for the 28 EU member states covering GDP, inflation, unemployment and debt. In its last set of figures three months ago, the EU’s executive said the euro zone recovery would be hampered by weaker private demand and investment and that growth will be an anaemic 1.1 percent in 2014 as a result.

Any revisions up or down would add to the further information the European Central Bank says it needs before deciding whether to take any action in March.

A detailed breakdown of Germany’s Q4 GDP data, just out, confirmed quarterly growth of 0.4 percent with exports leading the way. Foreign trade, which had been weak for much of 2013, added 1.1 percentage points to GDP in the fourth quarter but there was an alarm bell from weak domestic demand which subtracted 0.7 percentage points from growth.

Business morale rose in February to its highest level since July 2011 in a sign that growth in Europe’s largest economy is likely to accelerate in the first quarter but there is a question over whether Germans are actually feeling the benefits in their wallets.

South African Q4 GDP is expected to show growth of 3.4 percent on an annualized basis – almost 0.9 percent in European money.
The government will present its national budget to parliament on Wednesday, the last before May 7 elections in which President Zuma and the ANC are battling voter disillusionment over sluggish growth, high unemployment and failure to deliver a “better life for all”.

A Spanish state of the nation debate in parliament will be led by Prime Minister Mariano Rajoy. It’s possible he will use the occasion to revise upwards Spain’s growth forecast and downwards its deficit and unemployment goals. He might also outline further expected tax reforms.
The government has already said it expects growth this year of around 1 percent, up from an official projection of 0.7 percent.

Italy’s new premier Matteo Renzi duly won his parliamentary confidence vote and vowed to deliver both tax cuts and economic reforms. A separate vote in the lower house will be held today.

In Egypt, the government unexpectedly resigned on Monday, paving the way for army chief Field Marshal Abdel Fattah al-Sisi to declare his candidacy for president.

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