Credit History. Ukraine will receive the second bailout of the IMF credit, but it is not enough to support the economy.

I was not blogging here for a long time due to some personal reasons, but also because it was rather difficult to write about the messy situation we’ve got here in Ukraine. Every day we receive a portion of new information on what’s wrong in the country. And the picture really frightens. Ukrainian economy is getting worse, national currency is falling down (starting from the last week, the price of one dollar is more that 9 hryvnias, it’s twice more than five months ago).

To save the economy Ukraine is in need of the external financing. Here is also the problem: the International Monetary Fund (IMF) refused to issue to Ukraine the second bailout of its $16,4 billion dollars (Kyiv was supposed to receive $1,864 billion on 15 February), because Ukrainian authorities failed to comply with the requirements of the Arrangement with the IMF.

As a result, all the main world rating agencies have cut Ukraine’s credit rating. Fitch Ratings cut the rating to B, the fifth-highest non-investment grade, and kept the outlook “negative”. Standard & Poor's Ratings Services cut Ukraine's foreign currency sovereign credit ratings by two notches, to CCC+/C from B/B. S&P left Ukraine's outlook negative, indicating it may reduce the ratings further. I have to remind, that the next letter after C is D, which means ‘default’. The new S&P rating for Ukraine is the lowest in Europe – one of the ‘rating colleagues’ of Ukraine is Pakistan.

Experts said that Ukraine has no chance to attract investments and receive new loans, until its relations with the IMF will not be ‘repaired’. The only country that is ready to give money to Ukrainian economy is Russia, but the interest of Moscow is the geopolitical influence and the control on some of the strategic centers of the economy – for example, the gas transport system of Ukraine, which is a key to Ukrainian and all the European energy security. Besides, there is an evidence of upcoming problems in gas area. The 7 of March is a deadline date for a new payment of Naftogaz Ukraine to Russian Gazprom. Gazprom has already warned it may cut off gas supply to Ukraine on March 8.

Coming back to the troubles of Ukrainian economy, I have to add that people who were making such a sad prognosis on the destiny of the IMF loan didn’t take to the account the fact that the IMF as an Organization is not interested in loosing of such a big borrower as Ukraine is (actually a biggest one for the current moment). The break-up of the cooperation with Ukraine would also mean for the IMF the failure of the IMF policy, which may question the appropriateness of all the system of anti-crisis measures, worked out my the IMF experts.

As a result, the IMF decided to change the tone of a dialogue with Ukraine: if the country cannot accomplish its obligations and commitments, one of the ways out is to change the rules. Ukrainian authorities were asked to write a new Letter of Intent to the IMF, listing a new set of measures, more appropriate for the today’s economy state. I wrote about this issue for one Ukrainian newspaper, and here and here are the links to my recent articles (in Russian language).

So, next week (or a bit later) the Mission of the IMF will be back to Kyiv. Ukraine may receive the second tranche of the loan in March 2009. But it will not resolve the whole problem. To deal with the essential budget deficit, Ukraine has to ask for extra-loans (back to question of Russian ambitions), or to monetize it (back to the question of a severe inflation). Let’s see, which evil will be chosen by Ukrainian authorities?