Why Ukraine won’t declare default

The Ukrainian economy is in a steep nosedive. No matter how hard they try to conceal the real picture of the GDP (which supposedly has decreased by only 5.3%, although alternative estimates indicate 12.1%) with a decrease in inflation rates and some non-existent “achievements” in the spirit of the Odessa chess school – it’s clear that the situation is critical.

Everyone is talking about Ukraine’s default. Default is failure to comply with a loan agreement, that is, non-payment of interest or principal on debt obligations in a timely manner. In plain language, bankruptcy. In this case, default is a condition in which the state is unable to pay its bills. But there is no official act declaring that Ukraine will enter bankruptcy.

For the junta to recognize themselves as bankrupt would mean acknowledging the error of their policies of breaking economic relations with Russia, privatizing state property, infringing the rights of citizens of the south-east, and so – in other words, to lose power. So the country’s leadership won’t do it. Thus we understand that the government will not declare a default, even if the hryvnia falls to 35 to the dollar, and most businesses stop …

Someone might argue that pensions and salaries might be cut off too … But let’s be realistic — the authorities will continue to pay salaries and pensions, but by printing more money. Money printed but not secured by the National Bank or gold reserves (which in Ukraine has decreased by about three times over the past year!) — that is, plain paper. It is hardly necessary to remind anyone that an increase in the money supply leads to inflation and devaluation of the national currency, which is already quite weak.

The junta has driven itself into a corner and does not know how to get out. Poroshenko is in an unenviable situation — first, his American masters give him no rest, second, competitors like Yatsenyuk, Turchynov and Kolomoisky, third, the impoverished and embittered people, and fourth, a complete lack of money.

Speaking of money — IMF Managing Director Christine Lagarde said that the fund will help Ukraine only if the situation in the country is stabilized. Lagarde also said that in calculating assistance to the Ukrainian government, IMF experts proceeded from the assumption that a military conflict would end by the autumn. That’s why it was such a “hot” summer. It’s interesting that Lagarde in her comments mentioned that 20% of Ukraine’s economy is under a question mark. Does Ukrainian Garant [insurance company] acknowledge this?

Lagarde said Ukraine has already defaulted. In other words, she explained that Ukraine can’t pay the bills. Ukraine is insolvent.

Thus, going by the solid facts, we a have ruined economy, the failure of  Western “colleagues” to provide monetary support, a continuous river of blood in the Donbass, constant explosions at nationalist headquarters in Odessa, Kharkov and other areas.

Default has already arrived in Ukraine. Everything that we opponents of the Maidan predicted has come to pass. And the war, and the collapse of the country, and the destruction of the economy, and poverty … as the saying goes – gallops on …

But as the Eastern wisdom states, nothing is ever so bad that it can’t get worse. If we do not put an end to this mess, it will get worse. All enemies of the current government of nationalists and oligarchs must do whatever we can to put an end to the “Maidan syndrome.” All hope rests with us, and no one will do it for us.

Special for 2may.org

Translated by Greg Butterfield