Archive for November 23rd, 2011

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Ukraine: Delete IMF. Insert China

November 23, 2011

Well here is an interesting article in Kommersant.  China will replace the IMF in Ukraine.

So why has Kyiv fallen out with the IMF?  Officially no doubt over the refusal of the current government to raise the prices to consumers of utilities even more than it already has done.  It should be noted that utility prices have indeed been raised twice already at IMF insistence for previous loans in the past 18 months.

The IMF are dismayed at the lack of political will to do so again.  Then again the IMF are not facing elections in 10 months time, have not been directly responsible for raising utility prices twice, raising the pension age, reforming the tax code despite mass demonstrations, even if the IMF were the drivers of those policies in return for aid.

When Ms Tymoshenko was Prime Minister, she also broke off dealing with the IMF over raising utility prices before an election.  Surely the IMF must realise that yet another 50% hike in utility prices 10 months before an election is not politically palatable.  One month after elections is a completely different matter.

One wonders if the IMF have read the recent OECD report entitled “Perspectives on Global Development: Social Cohesion in a Shifting World”.  One wonders what the IMF believe are the root causes behind the Arab Spring, Occupy movements and various other violent and non-violent protests around the globe in the past year or so.  Could it be that those at the bottom and the rapidly disappearing middle classes across entire continents are at the point they cannot or will not be squeezed any further without protest (or worse)?

How far does the IMF think the current Ukrainian leadership can push the Ukrainian people in a 2 year period that would include 3 massive price hikes for utilities plus the other IMF driven unpopular reforms and retain any form of social cohesion, particularly when Ukraine is paying twice the price for gas to Russia than Germany is?  (Little wonder there is not much sympathy for Ms Tymoshenko from the public.)

It maybe that a new deal is struck between Ukraine and Russia that will bring the Ukrainian price in line with the EU average, in which case that saving may well offset the need for further price rises.  Enough for reengage with the IMF?.  It maybe however, Russia will make Ukraine stick to Ms Tymoshenko’s deal.

You will recall a few days ago, I posted about the National Banks of Ukraine and China agreeing bilateral trade in their own currencies and that Ukraine had become the 12th country that China will allow the Yuan to be held as a reserve currency.

It would seem that Ukraine, and possibly China, foresaw the issues with the IMF and the need for Ukraine to suspend talks with the IMF rather than enter a politically disastrous raising of utility prices now.  One suspects that Ukraine and China made provisional arrangements for China to replace the IMF during the negotiations over each nation holding the others currency via bilateral trade and removing the US$.

This is not particularly good news for the EU who may well have been hoping Ukraine’s need for IMF assistance would have indirectly and unofficially and behind closed doors led to Ms Tymoshenko’s release when threats to shelve the DCFTA and AA have failed.  By that I mean, an indirect but potent negotiating lever has been taken away to be replaced by China who will not bow to the IMF or the EU but are instead wanting far more clout within the IMF (and other institutions).

So why is China taking such interest in Ukraine?  Natural resources will play a minor part of course but neither the EU or Russia have a great interest in Ukraine for economic reasons and neither will China.  There is really no strong and convincing arguement for any major/regional power to be interested in Ukraine for economics reasons.  The only strong and convincing arguement is geopolitics and who holds sway over a nation slightly larger than France sitting between the EU and Russia.

China may well see Ukraine as a future geopolitical satellite province sitting between the EU and Russia.  It already holds the majority of those let Black Sea and Sea of Azov oil and gas exploration plots.  It has began a number of joint R&D projects with Ukraine, FDI in infrastructure, Chinese Consulates popping up all over the place, allows Ukraine to hold the Yuan and is now apparently prepared to be the Ukrainian lender of last resort.

Having managed to grasp the Russian language reasonably well over my many years here, maybe I should bypass learning Ukrainian and go directly to Mandarin?

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