Ukraine

Ukraine is weighing measures to stem cash withdrawals after as much as 7 percent of deposits were taken from banks during last week’s bloody uprising, underscoring the need for action to fend off a default, Bloomberg News reported. Withdrawals peaked with as much as 30 billion hryvnias ($3.1 billion) Feb. 18-20 as police and anti-government demonstrators fought in the center of Kiev, Natsionalnyi Bank Ukrainy Governor Stepan Kubiv, 51, appointed Feb. 24, said yesterday in his first interview.

There is a small risk that Ukraine may default on $3 billion in Eurobonds that Russia recently acquired, Russia's Deputy Finance Minister Sergei Storchak said on Tuesday. "We probably have risks, but not so big ones," he said. "It's possible to begin with the fact that the debtor has a difficult financial situation, that it can't return the money to us in two years." Storchak added that while the possibility existed of substituting one instrument for another, he was opposed to including Ukraine's debt to Russia in a general restructuring. "This wouldn't be right.

Poland’s prime minister said Tuesday he’s concerned that if given money now Ukraine would use it to pay the debts it owes to Russia rather than to initiate reforms as it seeks to build a new system of government, The Wall Street Journal Emerging Europe blog reported. “There’s concern the money that would be given to Ukraine now would go through it as a transit country. It would be ironic if Europe and the West helped only to see this money paying debts owed to Russia. Debts must be paid, of course, but this is not why we want to organize help for Ukraine,” Donald Tusk told reporters.

Ukrainian parliament Speaker Oleksandr Turchynov, handed presidential powers as lawmakers prepare to form a coalition government, warned that the economy was in a “pre-default situation,” Bloomberg News reported. Lawmakers in Kiev worked on reshaping government after ousting Viktor Yanukovych from the presidency for a role in the violence that killed at least 82 people last week. The U.S. and the European Union pledged aid for a new cabinet. Border guards stopped Yanukovych at an airport in the eastern city of Donetsk two days ago. He wasn’t detained.

Ukraine's sovereign bonds have remained relatively resilient to default fears emanating from rising political tensions, but a collapse in the value of the local currency could hurt the corporate and banking sector, Reuters reported. The political standoff between President Yanukovich and the opposition adds to an already precarious economic picture.

The worsening political and economic circumstances in Ukraine has prompted the Fitch Ratings agency to downgrade Ukrainian debt from B to a pre–default level CCC. This is lower than Greece, and Fitch warns of future financial instability, RT.com reported. “Intensification of political and economic stress is such that default on government debt becomes probable,” Fitch said in an e-mail. On the brink of default, the Ukrainian economy has taken a further beating as protests drag on in the capital Kiev. Foreign debt is $140 billion, nearly 80 percent of the country’s gross domestic product.

If events go smoothly for Ukraine’s cash-strapped government, Russia will begin bailing out the country as early as this week with a first purchase of $3bn in Ukrainian bonds, the Financial Times reported. Relief on the energy front is also imminent because Moscow will cut Kiev’s natural gas bill by one-third from the start of the new year. Those are the chief benefits promised this week by Russia’s President Vladimir Putin in a deal that will keep Ukraine firmly rooted in Moscow’s orbit and that appears to mark another foreign policy triumph for the Kremlin over the west.

Ukrainian anti-government protesters demanded to know what President Viktor Yanukovych had ceded to seal $15 billion of Russian financial aid and a one-third discount on energy imports, Bloomberg reported. Russia will buy Ukrainian state debt this year and next and will cut the price it charges for natural gas to $268.5 per 1,000 cubic meters, President Vladimir Putin said after meeting Yanukovych in Moscow yesterday. The two leaders said they didn’t discuss a Russia-led customs union after speculation Ukraine was close to joining riled pro-European demonstrators in Kiev.

Hidden behind the tug of war over whether Ukraine will cast its lot with Europe or Russia is the prospect of bankruptcy. Someone will need to chip in at least $10 billion in the coming months, if Ukraine wants to keep its economy afloat, the Associated Press reported. With talks on resuming credit from the International Monetary Fund stalled, President Viktor Yanukovych heads to Moscow on Tuesday to see what Russia might offer in exchange for freezing a strategic trade deal with the European Union.

As street protests in Ukraine enter their third week, a new crisis is brewing that could force President Viktor Yanukovych’s hand. The nation’s currency reserves have fallen so low that the central bank may soon be unable to support the hryvnia at its current value. Traders’ bets on a weaker hryvnia reached a one-year high on Dec. 10, following a 9 percent plunge in foreign reserves last month, Bloomberg Businessweek reported. Borrowing costs by lenders have soared in recent weeks, suggesting that the government’s efforts to prevent a devaluation are creating cash shortages.