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​No one wants to see Ukraine default – Swiss banker

Published time: March 07, 2014 16:31
Edited time: March 11, 2014 07:53
Street vendors wait for customers in the small Ukrainian town Pustomyty, near the western city Lviv (Reuters/Gleb Garanich)

Street vendors wait for customers in the small Ukrainian town Pustomyty, near the western city Lviv (Reuters/Gleb Garanich)

As Ukraine’s economy spins towards default, investors and bankers worry the financial turmoil will spill over into global markets, a scenario “nobody wants to deal with,” Arnaud Leclercq, Group Managing Director at Lombard Odier, told RT.

“The situation in the country is already in turmoil, very imbalanced and if you add to that a default, it would probably be a road to a much worse case scenario, that obviously nobody wants,” Leclercq said.

A Ukraine default will happen when the government announces it can no longer meet its debt obligations.

“Nobody would want to deal with that, because it will trigger a number of other consequences for the country itself. A ‘domino effect’ and a social effect,” Leclercq said.

Arnaud Leclercq is an expert in Russia and CIS markets, and has traveled to, and worked in Moscow since the age of 25, when he set up a real-estate consulting firm in the 90s. He experienced at first hand the 1998 default and the cash crisis, when the value of the ruble plummeted as the Central Bank could no longer prop up the currency with interventions.

"Ukraine is between Europe and Russia geographically, culturally and in number of other regards.We believe that if any solution is found it has to be found jointly. Just for common sense, for historical reasons and for financial reasons as well,” said Leclercq.

Ukraine’s Central Bank halted currency interventions in February. As a result, the hryvnia has slid 20 percent against the dollar this year. However, continuing to prop up its overvalued currency is no longer an option for Ukraine, as its treasury is nearly empty, with foreign currency reserves close to $15 billion.

If Ukraine defaults and the hryvnia collapses like the ruble did in 1998, inflation is expected to soar and many banks across the country will close, and ordinary people could lose their life savings overnight.

The economic situation in Kiev is dire and an uncertainty hangs over the political direction of the country.

Ukraine’s IMF burden

The EU, together with the IMF, has put forward an 11 billion euro ($15 billion) aid package for Ukraine, which may save it from default, but will also come at a high cost to the country.

“Let’s not forget that the Greek crisis has cost the European economy more than 300 billion euro, not peanuts, by any means,” Leclercq said.

The eurozone crisis forced 5 countries to seek bailout help from the IMF and European lenders. Ireland and Spain have exited their bailout programs, but other countries, especially Greece, are paying the price for taking the money.

A Harvard Business School alumni and former banker at Credit Suisse, Leclercq is not sure Europe alone can handle the economic weight of Ukraine, a nation of 45 million people with a gross domestic product of $176 billion.

“Could Europe sustain Ukraine today alone?” Leclercq pondered. "Many European countries still have their own economic woes to deal with.”

Comments (18)

 

Derek Maher 17.03.2014 21:04

Of course the bankers and Bond speculators do not want to see a default.
The bond holders want the EU and IMF to loan money to Kievs Finance centers.
So they can get 100 cents on the dollar for their bonds.
Many of course bought the bonds for as little as 10 cents on the dollar so will make a finance killing.
The IMF will make sure the Ukrainian people sweat out their last assets for the next 30 years to pay back these vultures.

 

yuri_nahl 17.03.2014 16:32

"We are here to support your just cause,..." John McCain, 15 December, 2013. So where is YOUR checkbook John? Or is one of those ladies in that photo Victoria Nuland selling stale bagels at a discount?
John McCain said, “The Ukrainian people will determine their own future. They want to be Western…they do not want to be Eastern,”
It is a pity that the West does not want Ukraine to be Western.

 

Tony Blair 10.03.2014 13:12

The quicker the ukraine collapses economically & socially the better. The sooner we can get on with the civil war & get it all cleaned up.

View all comments (18)
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