History of Ukrainian Debt Dependence Formation

9 November 2015 by Center for Social and Labour Research

In 1999 Ukrainian government debt exceed critically level of 60% of Gross Domestic Product (GDP) : $15.3 Bn.

In 2002 ,Ukraine refused credits from IMF. From the end of 2004 cooperation with international finance institutions was limited by consulting and technical support. New credit programs were not taken until 2008.

In 2004, world leading rating agencies Rating agency
Rating agencies
Rating agencies, or credit-rating agencies, evaluate creditworthiness. This includes the creditworthiness of corporations, nonprofit organizations and governments, as well as ‘securitized assets’ – which are assets that are bundled together and sold, to investors, as security. Rating agencies assign a letter grade to each bond, which represents an opinion as to the likelihood that the organization will be able to repay both the principal and interest as they become due. Ratings are made on a descending scale: AAA is the highest, then AA, A, BBB, BB, B, etc. A rating of BB or below is considered a ‘junk bond’ because it is likely to default. Many factors go into the assignment of ratings, including the profitability of the organization and its total indebtedness. The three largest credit rating agencies are Moody’s, Standard & Poor’s and Fitch Ratings (FT).

Moody’s : https://www.fitchratings.com/
raised Ukraine’s credit rating to “B -”B+" with stable and positive forecast. Itgave the government access to international finance markets and placing Eurobonds of Ukraine by record low rates, 6,9%.

The result was in reducing debt pressure on Ukrainian economy.

The acceleration of the global financial crisis in 2008 caused the “stop effect” for Ukrainian economy - massive private capital-output from Ukrainian market, reducing both domestic and external demand for Ukrainian products. Ukraine again started to accumulate debts.

Accumulated new debts in 2009-2010 years in 2011 led to a threatening situation. New external debts were almost equal repayments on previous loans.
In this situation, Ukraine made a radical turn in economic policy, including the financial economic sphere, after the regime change after the tragic events of winter 2014.

2015: Public and publicly guaranteed debt will increase to $1.394 trillion and will exceed Ukrainian GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.

In March 2015, Ukraine received the first $5 bln tranche due to new IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

credit program « Extended Fund Facility », with overall financing of $17,5 bln.
De-facto fulfillment of credit terms would mean loss of Ukrainian independence in economic policy.



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