Thursday, February 26, 2009

Pols fight while Ukraine sinks

Economists at Standard and Poor’s have downgraded Ukraine's credit rating from B/B to CCC+/C (which is a pretty bad rating as these things go). So at this point you may be asking, why is this important?

Because Ukraine is due to receive the next portion (or ‘tranche’ in financial-speak) of their $16 billion bailout loan from the International Monetary Fund (IMF), a roughly $2 billion installment. While economies around the world are feeling the pinch from the global credit crisis, Ukraine's economy has taken an absolute beating; they needed the IMF loan late last year to keep their currency afloat. Things have gotten so bad that the IMF loan is no their largest source of foreign investment.

Of course the IMF doesn’t just throw billions of dollars around, they expect to see some financial responsibility on the part of the countries they’re aiding, and so far they’re not seeing it from the government in Ukraine, and that goes directly to the ongoing, and seemingly endless, and bitter, power struggle between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko.

Instead of working together to adopt some fiscal policies to help Ukraine through these tough financial times, they have decided to just continue their feud (readers may remember that Yushchenko recently accused Tymoshenko of treason, while she tried to strip his office of all its power). The bond rating agencies have taken notice, and so too might the IMF - meaning they may decide not to release the next $2 billion in aid, a move that could sink what's left of Ukraine's economy.

Meanwhile, don’t expect these two to start acting like adults anytime soon. All indications are that they will continue their squabbling until the presidential elections early in 2010. Hopefully for Ukraine a decent third candidate will emerge.
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