What does Ukraine have to do to get real help from the West?

Kyiv Post: 25. September 2014
Op-ed — by Timothy Ash

A old woman today in Pervomaisk, eastern Ukraine, sitting down in a residential area shelled a few weeks ago. 

I think rather the really difficult economic reality of Ukraine is now setting in with investors, with economic activity collapsing. Industrial production is down over 20 percent year-on-year in August, and production in Donetsk and Luhansk almost halted. The National Bank of Ukraine is really struggling to defend the hryvnia, as exports are collapsing, and sentiment with it. As a National Bank of Ukraine offical said today,demand for FX is very high again.     

And what about Western support?

Well I think there was an argument that Ukraine was simply too important to fail - but let's face it, Ukrainian President Petro Poroshenko went to Washington, D.C., and made the speech of his life on Sept. 18.

"Live free, or die." He is not naturally a star public speaker, but he hit this one totally out of the park - 13 standing ovations and hegot absolutely "nada" from U.S. President Barack Obama. 

It makes you ask what Poroshenko and Ukraine needs to do to get even a modicum of support from the West. And I guess therein, this is the realisation dawning on investors - i.e. don't hold your breath for an open cheque book for Ukraine from the West.

Note therein the re-statement of the position from the European Union on Sept. 22, that disbursement of its 1.6 billion euro in credits for Ukraine will be conditional on implementation of a reform agenda. Dudes, the country has just been invaded, and is at risk of total collapse now!

And I guess the concern here now is that looking forward, Ukraine may end up re-restructuring, rather as did Greece before, even after getting an IMF programme. External market debt might not be huge, but with official financing building up on the sovereign balance sheet, it suggests that any hair cut if applied on private sector creditors would now need to be pretty aggressive to "make a difference."

The hope is that Ukraine still "plays by the rules," and seeks to pay creditors in full, but difficult choices are going to have to be made if the West does not finally step up to the plate. And then there is that tricky issue of the Russian bail bond trigger being hit by April next year - true, the Ministry of Finance might use International Monetary Fund money to repay early, but Russia will likely use this issue to make life very difficult for Ukraine.

Markets are likely to fret in the run-up to the release of 2014 national accounts data in April 2015.

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Timothy Ash is the head of emerging market research for Standard Bank in London.