Ukraine must stop foreign borrowing - Azarov‏

Well you did wonder when Ukraine was going to mirror the political divides of the US, the UK and many other EU nations over the issue of debts and deficits.

It seems Ukrainian Prime Minister Azarov would take an extremely cautious and conservative view. “We have to restrict, or maybe even completely suspend foreign borrowing, and have to be extremely careful while issuing state guarantees” (on commercial loans).

He is of course quite right to have concern over the effect the current US failure to reach agreement over its debt ceiling will have on a global scale. That will pale into insignificance come October when the US delivers (if it does) a budget for the next year that will not address debt or deficit to market satisfaction.

He is right to concern himself over the Eurozone issues as the latest agreement seemingly sets the stage for the creation of a EMF (European Monetary Fund) quite similar to the IMF. That though will mean major national and EU structural legal changes which may or may not get passed relevant nations parliament or referendums if necessary/held.

Now is probably not the right time to go rushing into the international market borrowing money with such immediate uncertainty ahead. Much more will be apparent by the end of the year with regards to the likelihood of the legal creation of something like the EMF and also the reaction globally to the US budget in October.

With record reserves of about $37 billion, even if it cost $15 billion in government spending before the end of the year, quite possibly that is a wise course than to borrow from the markets at the moment.

The Prime Minister’s position does seem to put him at odds with Deputy Prime Minister Tigipko who is insistent that continued and speedy IMF borrowing should occur.

To be fair to Tigipko, whether Ukraine needs the money or not, it does need to shed the huge subsidies it gives the public when it comes to utilities and which is a key condition of further IMF lending. Irrespective of the money, sticking to the IMF agreement provides the discipline to achieve what otherwise will not get sufficient political backing to get through the RADA. Public ire can always be partially deflected towards the IMF when all is said and done whilst it remains a key condition of the future loan installments.

There are pros and cons to both arguments of course. There are always pros and cons with any decision. Still, at least the issue has appeared as a blip on the Ukrainian radar.