The country is waist-deep in economic woes, but some of the risks are grossly exaggerated

It has become fashionable in the wake of the global economic crisis to portray Ukraine as the next Iceland, slipping into financial default, or as a failed state.

While the country is waist-deep in economic woes, some of the risks are grossly exaggerated due to the mudslinging between President Victor Yushchenko and Prime Minister Yulia Tymoshenko. Some experts wonder if Yushchenko is deliberately trying to make a bad situation worse in order to undermine his rival. A responsible president does not ring alarm bells that his country may be on the verge of default, especially when the hard evidence suggests otherwise.

If you ignore the noise and focus on the numbers, Ukraine’s debt relative to gross domestic product is far below the 60 percent range that many countries endure. Experts say Ukraine’s government and government-guaranteed debt at the end of 2008 amounted to $24 billion, or 19.5 percent of gross domestic product. Despite negative dynamics for the last few months, $28.8 billion in current central bank reserves is sufficient in a worst-case scenario.

Many fear Ukraine’s bank sector could collapse, dragging the state down with it. According to one estimate, the total amount of banking and corporate debt due this year is up to $40 billion. There will be some defaults, but as central bank officials revealed this month, debt obligations by the largest banks (the lion’s share of the market) seem manageable. A handful of top domestic banks will need government bailouts. The majority will be recapitalized by their European parents, who are themselves largely to blame for lending Ukraine too much in recent years. Moreover, the European Bank for Reconstruction and Development this week pledged 500 million euros to recapitalize troubled Ukrainian banks.

Another concern is whether Ukraine has enough to pay pensions and unemployment benefits. Facing the threat of civil unrest, Tymoshenko appealed to the world’s richest countries for $5 billion in emergency loans. Russia has expressed interest, fueling speculation by Yushchenko that his rival had sold out national interests. Close examination of any Russian loan is needed, as well as ways to cut the bureaucracy-laden budget. Any loans should be directed at infrastructure and energy efficiency, investments that will pay off in the long run.

The challenges facing Ukraine are deep, but there’s no need to hit the panic button. From available evidence, international credit rating agencies are wrongly portraying Ukraine as on the brink of collapse.

The words of one Ukrainian banker offers hope: “Where were these rating agencies last year? Why didn’t they predict the downfall of Lehman Brothers and other banks out in the West? Their banks are collapsing. But we are still standing, despite all the challenges, while their banks are going down one by one.”

Quelle:http://www.kyivpost.com/opinion/editorial/35763

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