First, a deputy finance minister is cited as suggesting that no International Monetary Fund monies are likely to be disbursed now before year end. The key impediment at the moment I think is approval of an IMF-compliant new budget/tax code, which had been slated to be tabled before the Verkhovna Rada this week, so this still suggests that will be difficult to get sign off, as there are still mixed views in the Verkhovna Rada. No budget/tax code, then no IMF signoff, and this then means up to $4 bilion in official financing won’t now be disbursed before year end, or rather will be tricky.
Second, the Ministry of Finance indicated that Ukraine has still not received the terms of the 1+1+1 debt restructuring offer from Russia, over the $3 billion. It still seems perverse that Moscow has not supplied fine detail to Ukraine of the terms of the deal “hinted at” at the G20 a few weeks back in Antalya, despite claiming that it has discussed the issue with the IMF, et al. I think the deadline to agree any such restructuring, to avoid a possible hard default scenario, is Dec. 7-8, or thereabouts, so the clock is ticking. Cynics might argue that the above offer is not really serious, and meant just to create uncertainties in advance of the reported IMF decision over changing IMF policy over lending into official arrears. Not sure now if the IMF board still has time before the Dec. 20 maturity date to make that determination, or else we will be left with the uncertain situation of Dec. 20 coming, unsure about whether Ukraine will pay the $3 billion or not, and if not, what then? Given no IMF/official disbursements are now expected to year end, it is difficult to see how Ukraine could meet the $3 billion payment without the risk of causing pressure on the balance of payments and the exchange rate – the latter scenario could well then unwind the IMF macro-targets, and also the whole debt sustainability scenario used as the basis for the PSI.I guess this then leaves the most likely outcome now that no monies are paid on Dec. 20, and Russia tries to claim an official default – the IMF board will then have to rule if the debt is official and decide whether it is changing its lending into arrears policy. This looks messy – I had assumed the IMF would change policy before the Dec. 20 deadline, but this now seems uncertain.In the interim, Ukraine will remain off-track in effect with the IMF programme, given no agreement on further disbursements. I guess this could all drag out into 2016, further delaying disbursement – I guess no IMF disbursements under the programme would be possible in any event unless then a determination was made by the IMF board over the lending into arrears policy.
Third, the U.S. President Barack Obama – Russian President Vladimir Putin meeting seems to have yielded little on the Ukraine front. Obama seems to have played a straight bat again, i.e. he expects full implementation of the Minsk II deal, presumably to see sanctions reduction on Russia. Therein, the key still for the US, and Kyiv, will be allowing Ukraine control again over its border, which implies in effect the withdrawal across the border of any Russian forces therein, and the demilitarization of rebel groups. This all seems very unlikely.
Fourth, Ukrainian engineers have been allowed some access to power cables supplying Crimea with electricity, but their ability to complete repairs to downed power cables appears partial. The government in Kyiv is likely being encouraged by the West to facilitate the repairs and do nothing to risk an escalation with Russia over Crimea. The Ukrainian authorities are likely nervous as to how all this plays out on domestic politics in Ukraine, given the blockade of Crimea is likely popular amongst certain constituencies at home. The most likely scenario is that this all drags on some time yet, with Crimea continuing to suffer electricity outages for some time, until Russia is able to supply the peninsula on a regular basis from mainland Russia, a scenario which still seems some way off. This is embarrassing for Russia – as some 18 months after the annexation of Crimea it is unable to show it is able to sustain utilities supplies to Crimea, and arguably those blockading the peninsula hope to further expose these failings.
