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Ukraine Under Water to IMF

December 12th, 2014

Michael Collins

The Financial Times broke a major story yesterday about the Ukraine and its benefactor, the International Monetary fund. FT revealed the shocking truth of the financial crisis. The $15 bn in IMF loans provided to Ukraine are at risk. Another $17 bn committed and flowing through the IMF pipeline, look like another lost cause.

"The magnitude of the problem became apparent after Ukraine’s central bank announced that its foreign currency reserves fell to only $9.966bn in November, or six weeks import cover. Three months import cover is regarded by the International Monetary Fund as the critical threshold, under which a country becomes vulnerable to a balance of payments crisis. Only $9bn of Ukraine's reserves are in liquid foreign currency, with the rest in bullion, according to the NBU." Peter Spiegel and Roman Olearchyk, FT, Dec 10

At the IMF briefing that exposed these problems (covered by FT), officials claimed that the problems with Ukraine's economy are due to a 7% drop in the GDP. That seems like a very odd figure since the breakaway Donbass region represents 16% of the GDP, at last measure, and Crimea accounts for a little over 1%. That's 17% of GDP that has left the Ukraine. In order to show just a 7% drop in GDP, Ukraine had to first make up the lost 17%.

Something is wrong with the IMF claim.

IMF countries are not lining up to provide a $15 bn bailout. Ukraine's government would do well to recall the fate of Greece at the hands of Germany and the United States.

Russia to the rescue!

Russia offered Ukraine a $15 bn aid package in December 2013. That wasn't suitable to the extremists in Maidan. That offer was off the table after the violence inspired coup of late February 2014. Instead, Ukraine counted on membership in the EU and NATO and boatloads of foreign trade to turn the country into the tip of the spear aimed at Russia (until recently, Ukraine's biggest trading partner). There's no EU membership and NATO membership is not on the horizon. Trade between Ukraine and the West is still inconsequential and aid comes in the form of loans that will never be repaid.

What a great deal! Ukraine is now an economic basket case, a shrinking nation with more shrinkage on the way, and a geopolitical orphan before it was ever adopted by the West.

Who are they going to call?

"According to two people who attended the EU meeting, concern over Ukrainian finances has become so severe that Wolfgang Schauble, the German finance minister, said he had called his Russian counterpart, Anton Siluanov, to ask him to roll over a $3bn loan the Kremlin made to Kiev last year." FT Dec 10

Roll over is the operative term in the above report. It's also the operative demand by the U.S. and EU in the larger picture. Anyone in the way needs to just roll over and play dead.

Russia needs to take a beating on loans and let the Ukrainians buy gas with empty promises of payments.

Russia's natural gas companies should look the other way while Ukraine steals gas headed or Europe from the pipeline transiting its borders.

In particular, the people of Donbass need to roll over big time as the Kiev coup government bombs their towns and cities, kills and maims innocents, cancels pensions owed to its citizens, and destroys infrastructure.

The Western nations need some couch time to examine their neuroses. Theie sense of entitlement is becoming a delusional orgy of crazy logic and demands. It looks like Haldol time for the rulers in Brussels and Washington.

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