MOSCOW, August 28 (RIA Novosti), Stanislav Fisher - Ukraine's economic crisis is self-inflicted. This is quite obvious, despite the government's attempts to blame Russia's allegedly hostile actions and the lack of help from the West. According to estimations Ukraine’s Prime Minister Yatsenyuk made in April, Ukraine needed at least 35 billion dollars to keep the economy afloat until the end of 2014. The total sum of credit it has obtained so far from the IMF, the EU and the World Bank is less than five billion dollars. The IMF's second tranche of the promised 17 billion dollar loan has not been paid yet, despite the fact that it had been scheduled for June. Given that the IMF had made the subsequent tranches contingent upon Kiev's ability to regain control of the breakaway regions, it is likely that Ukraine will not get some or all of the remaining tranches.
President Poroshenko made the situation even worse with his decision to sign the EU Association Treaty, which resulted in a flurry of Russian measures enacted to protect the Russian market from the re-export of European goods through Ukraine. Ukrainian business is now locked out of the Russian market, which was its top export destination, yet at the same time is unable to meaningfully penetrate the oversaturated European market. Kiev has been repeatedly warned about this scenario, but President Poroshenko has made the stunningly unwise choice of ignoring Russian concerns and warnings. Now, the country's economy is suffocating and is facing a serious currency crisis. The Ukrainian hryvnia is trading at around 13.89 hryvnias per dollar (having traded at approximately 8 hryvnias per dollar in the years following the 2008 economic crisis), causing investors to flee. On August 22, Fitch Ratings downgraded local-currency-denominated Ukrainian debt to its lowest possible level (CCC).
According to finance.ua, Yatsenyuk recently stated that “the Ukrainian economy can't handle an exchange rate that is higher than 12 hryvias per dollar”. The exchange rate is 15% higher than its critical level and shows no signs of returning to previous levels. The country's central bank cannot use market interventions to prop up the hryvnia because it has almost no hard currency left; a significant portion of its currency reserves are locked up in illiquid governmental bonds. The currency is collapsing and this is visible to everyone. Political analyst Mark Sleboda put it best in a scathing tweet:
On top of the currency crisis, there is an energy crisis brewing. Last week, the government announced its intentions to import coal, once considered a staple of the Ukrainian industrial economy, from Australia because its mines in the breakaway regions have been destroyed. The country depends on Russian gas and the coal from its eastern regions, and now it has neither. A week ago, the Cabinet outlined the procedure for declaring a state of emergency in the country's energy sector. Blackouts are becoming more and more likely.
It will be a long, cold and probably dark autumn and winter for Kiev. Judging by its previous actions, the West will not be coming to rescue Ukraine from its economic misery.
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