MBS Blog

There is a mad scramble for capital now. People are looking for loans from banks. The banks are looking for loans from governments. Governments are looking for loans from each other and eventually governments will have to get the money from their citizens…

Eastern Europe has been especially hard hit. It will interesting to see if nations in the European Union-who have the largest share of foreign investment in Eastern European emerging markets-will come to the rescue. With limited resources, and their own credit and banking problems, European nations are going to have a bit of trouble loaning to Eastern Europeans, especially when their own populations are also suffering.

If the situation in Eastern and Central Europe worsens however-and that is the expectation at this point-then Western Europe could be forced to help since the geo-political repercussions would be quite negative.

this from the Associated Press:

Ukraine seeks euro500 mln from EBRD

Ukrainian President Viktor Yushchenko on Wednesday met with the chief of the European Bank for Reconstruction and Development amid efforts to secure a euro500 million investment package to rescue this ex-Soviet republic`s devastated economy, AP reported.

The bank is considering investing the money into recapitalizing some Ukrainian banks, shaken by the global credit crunch and a confidence crisis. Three Ukrainian banks have been put in receivership and another one has been sold to a Russian institution after being taken over by the central bank.

The economy is struggling to stay afloat after the International Monetary Fund withheld a key second tranche of a $16.4 loan over a failure to meet loan obligations earlier this month, prompting Kiev to turn to G-7 members and Russia for aid.

The loan problems led the international rating agency Fitch to downgrade Ukraine`s ratings, while another agency, Standard and Poor`s, threatened a similar move.

The IMF said Ukraine had failed to cut government spending and reconsidering this year`s budget, as had been agreed on. Finance Minister Viktor Pynzenyk resigned last week in a row with Prime Minister Yulia Tymoshenko over the same concerns.

Yushchenko told EBRD President Thomas Mirow that a failure to receive the expected $12 bln in aid from the IMF this year could severely hurt the economy and that is why Ukraine was turning to the EBRD for help.

“The situation is complicated,” Yushchenko told Mirow, according to the Interfax news agency.

Industrial output slumped by a staggering 34.1 percent in January, year-over-year, in what officials said was the biggest fall in the country`s history.

The national currency, the hryvna, has lost 40 percent of its value since last fall, due to a drastic fall in exports.

The crisis, coupled with a higher gas bill from Russia has also led to gas shortages in the eastern city of Dnipropetrovsk and the southern Crimea peninsula. Officials said, however, that hot water and heating supplies had been restored in most households in those regions by Wednesday morning.

Technorati Tags: capital, loans, Europe, Ukraine, Russia, Anton Olff, MBS Ltd., Eastern Europe, Central Europe, Associated Press, President Viktor Yushchenko, European Bank for Reconstruction and Development, EBRD, Soviet Union, recapitalization, global credit crunch, International Monetary Fund, Kiev, G-7, Fitch, Standard & Poors, Yulia Tymoshenko, Viktor Pynzenyk, Thomas Mirow, industrial ouput, hryvna, exports, gas shortages, Dnipropetrovsk, Crimea

OK…it is one thing for Ukraine to send letters begging for money to the USA, the EU, even China…but Russia? What are they thinking in Kyiv? Sure…Russia will loan you the money. They may be running a bit short due to propping up rubles and oligarchs, but they will find some spare cash as they know they will gain considerably from any arrangement.

After all, they promised the Kyrgyz Republic some money too. However, the conditions-regardless of what is officially denied-is that a U.S. base be closed. Imagine what they will demand of Ukraine?

From www.ft.com:

Ukraine pushes for loans to meet shortfall

By Roman Olearchyk in Kiev

Ukraine has appealed for emergency loans from the world’s richest countries to help support its economy, which has been battered by the global financial crisis.

Yulia Tymoshenko, prime minister of Ukraine, said her government had sent letters to the US, Russia, China, Japan and the European Union asking for loans to fill a shortfall in budget revenues for this year.

 “We have already received a positive response from some countries, including Russia,” Ms Tymoshenko said at the Munich Security Conference at the weekend. “Russia is ready to sign such loan agreements.” She did not clarify how much Kiev was seeking to borrow but reports in Ukraine suggested Russia could lend $5bn (€3.9bn, £3.4bn).

Ms Tymoshenko said Ukraine was keen to harmonise relations with Moscow, soured after last month’s gas prices dispute. She insisted Kiev would stick to a western integration agenda that included efforts to join the European Union and Nato.

News that Ukraine was seeking emergency loans amid frozen credit markets comes days after a senior International Monetary Fund delegation warned of “serious problems” brewing in Ukraine’s economy.

The fund delegation ended its one-week visit to Kiev last week but provided no clear signal on whether it would grant further disbursements from a $16.5bn standby facility agreed last year.

Ukraine received a first tranche of $4.5bn last November. Future disbursements depend on the implementation of tough conditions and are needed to keep Ukraine’s currency, the hryvnia, stable. It lost nearly 40 per cent of its value in 2008.

The IMF’s concerns centre on Kiev’s 2009 budget, which has a 3 per cent deficit in spite of a fund stipulation it be deficit-free. It also seeks a freeze on social spending at a time when more than 1m out of a population of 46m have lost their jobs.

Ukraine’s gross domestic product is expected to contract by around 5 per cent this , thus curbing budget revenues, complicating the state’s ability to rescueshaky banks and to provide unemployment benefits.

Ukraine is struggling to tame annual inflation of more than 20 per cent and toadjust to a fourth stiff price rise on natural gas imports from Russia in as manyyears.

The US and other western nations are keen to stabilise Ukraine for geopolitical as well as economic purposes, given its important position in Eastern Europe as a neighbour of Russia.

Technorati Tags: Ukraine, Russia, United States, European Union, China, Kyiv, MBS Ltd., Anton Olff, Kyrgyz Republic, military bases, loans, Roman Olearchyk, global financial crisis, Japan, Munich Security Conference, Yuliya Tymoshenko, Moscow, NATO, International Monetary Fund, hryvnia, gross domestic product, natural gas, geopolitics