China to the resque of hryvnia?
To salvage the national budget the government could turn the country into China’s dumping ground, KW warned in an article this week.
The disproportion in Ukraine’s balance of trade is finally becoming clear. On September 4 trading on the currency interbank exchange basically stopped by mid-session due to the unavailability of U.S. dollars. Buyers swept out the greenbacks, the value of which soared to UAH 8.14-8.15/US $1 by the end of trading. The National Bank of Ukraine opted not to intervene in the situation and reassured that the dollar leap is a temporary phenomenon.
As the chances of reestablishing cooperation with the IMF are slim to none, and a routine gas conflict brewing, Russia will likely refuse to help Ukraine, the government is looking towards the East. Over the past two months only Ukraine agreed with China on the allocation of two loans: US $3 bn for the development of agriculture and US $3.656 bn to Naftogas Ukrainy for replacing natural gas at heating stations with Ukrainian coal.
Late last year it was widely rumored that China offered Ukraine to acquire all of the latter’s sovereign debts, which was approximately the same level of the debts of member countries of the Eurozone that “burned” on debts. The deal would allow Ukraine to substantially reduce the load on the national budget in terms of servicing the country’s foreign debts, reviewed experts told KW.
“If Ukraine befriends China, it will be much easier for the government to haggle with Russia about any products from gas to cheese. If the relations with Beijing are properly established, Ukraine stands to considerably increase its export earnings from the sale of goods, mainly food products, to China,” President of the Ukrainian Analytical Center Oleksandr Okhrymenko prognosticated.
“In that case, the country would manage with time to achieve a positive foreign trade balance through the reduction of metal production and, accordingly, the reduction of purchases of natural gas in Russia,” Okhrymenko went on to say.
However, “Chinese loans are essentially project financing allocated for the construction of concrete objects and implementation of projects. The Chinese economy will see a substantial return on investment seeing as Ukraine will be purchasing equipment and technologies from China, attracting its labor force and so on,” says Olena Belan, Chief Economist at Dragon Capital.
So it is quite possible that refusing the services of the IMF, Ukraine will be pulled into the orbit of Chinese dependence instead, the article by Halyna Pannova concludes.