Bondage for 20 years. Because of the growth of the hryvnia exchange rate Ukraine will pay creditors billions of dollars

The “country” I understand the reasons for the unusual behavior of the hryvnia this year

Кабала на 20 лет. Как из-за роста курса гривны Украина заплатит кредиторам миллиарды долларов

For the second consecutive year, the hryvnia continues to amaze. The usual seasonal fluctuations, when the end of the summer the national currency begins to fall, and in spring to grow, it is not working. On the contrary, this summer and in the fall of the hryvnia strengthened much stronger than you would expect.

Кабала на 20 лет. Как из-за роста курса гривны Украина заплатит кредиторам миллиарды долларов

Change of the official exchange rate of hryvnia in 2016-2019 Photo: NBU

This is especially surprising given that Ukraine has a chronic external trade deficit. We sell for export is much less goods than we buy abroad in the form of imports.

The “country” I understand the reasons for the unusual behavior of the hryvnia this year.

Ukraine pays a huge percent of creditors

At first glance, the solution of the phenomenon of strengthening of the hryvnia is simple: this year there is an unusually large inflow of foreign investment in hryvnia government bonds (t-bills). This ious, which the Finance Ministry is of the hryvnia in Ukraine to cover the expenses of the state budget.

Ukrainian government bonds – one of the most profitable in the world. In the beginning of the year interest on government bonds was about 20% per annum. Now the yield decreased slightly and is around 15% per annum.

This is a very high rate. This percentage is very different from the yields on bonds of other States. For example, the yield on US government bonds is around 1-2% and the government bonds of Germany this year, all began to be sold with a negative yield. Near zero interest paid on public debt even Ukraine’s neighbors Poland and Hungary.

Why Ukraine pays its debts? After paying ultra-high interest goes up the taxes of Ukrainian enterprises and citizens. The money payments instead of financial speculators, could be spent on more useful purposes, such as construction of roads, increase of salaries of doctors and teachers.

Debt was not necessary

It seems that a portion of the loans at exorbitant rates were not needed. “Country” analyzed data from Treasury on the balances of money in the single Treasury account, where the funds of the state budget. As it turned out, since August of this year there began to gather dead weight record the amount of 48 billion UAH at the beginning of August and 61 billion at the beginning of September and October.

Кабала на 20 лет. Как из-за роста курса гривны Украина заплатит кредиторам миллиарды долларов

The remaining balances in the Single Treasury account Haskanalu. Photo: Страна.UA

Why would the Treasury need to borrow billions through the issuance of new government bonds, if the accounts are record amounts of residues of the hryvnia, we can only guess.

The hryvnia has fallen off the non-residents

Extra high yield bonds of Ukraine has attracted this year, the international financial speculators.

For the current year non-residents increased their investments in t-bills 15 times. Since the beginning of 2019, foreign companies (non-residents) bought government bonds worth 90 billion. This is the equivalent of about $3.4 billion.

Now, according to the NBU, non-residents own the bonds of domestic Treasury bonds in the amount of almost 100 billion hryvnia, which is equivalent to about $4 billion.

Кабала на 20 лет. Как из-за роста курса гривны Украина заплатит кредиторам миллиарды долларов

The volume of government bonds, which are owned by non-residents. Photo: NBU

A factor in the purchase of government bonds by non-residents, according to experts, was the main reason for the strengthening of the hryvnia this year. Listed by non-residents in Ukrainian currency the hryvnia has strengthened by more than 10% – from 27.5 to 24.8 per dollar.

Between the growth of purchases by non-residents government bonds and the growth rate are directly linked. Its mechanism follows.

To buy government bonds, non-residents must first be listed in Ukraine currency. Here they sell it in exchange for the local currency. Only after that non-residents are for the hryvnia to buy government bonds.

As a result, because sales of large amounts of currency, hryvnia exchange rate is growing, and the dollar and the Euro, respectively, falls.

A direct correlation between the hryvnia and the volume of investments of nonresidents in government bonds was observed throughout 2019: the more strengthened the hryvnia – the greater the investments of nonresidents in the hryvnia government bonds and Vice versa. This dependence is clearly visible in the following graph.

Кабала на 20 лет. Как из-за роста курса гривны Украина заплатит кредиторам миллиарды долларов

Photo: NBU

Cabal name Yaresko

Perhaps the clue to the strange multi-billion dollar debt that Ukraine scored this year lies in the past.

In 2015 Ukraine, in the person of then Minister of Finance, of US citizen Natalia Jaresko, has agreed with foreign creditors to restructure the public debt totaling $18 billion.

The politicians talked about the cancellation of 20% of Ukraine’s debts. In fact, part of the debt in the amount of approximately $3.2 billion were not written off, and replaced by “GDP bonds” (also called “GDP warrants”).

This is a special securities, which investors should receive part of the gross domestic product (GDP) of the country.

Lenders suggested then replace every $ 1,000 of debt for new debt securities. The debts to $ 800 Ukraine agreed to pay interest at the rate of 7.75%. Payments under 200 dollars loans have grown to depend on GDP growth, i.e. the growth of the Ukrainian economy.

Under the terms of the restructuring, payments for “GDP bonds” shall begin when two conditions are met:

1. The country’s GDP starting in 2019, should be higher than $125.4 billion;

2. The Ukraine’s GDP growth should exceed 3% per year.

Conditions of issue of these “bonds Yaresko” was recorded in 2015 in a special decision of the Cabinet.

Кабала на 20 лет. Как из-за роста курса гривны Украина заплатит кредиторам миллиарды долларов

Screenshot: zakon.rada.gov.ua

Payments on “bond Yaresko” will begin because of the growth of the hryvnia

Bar GDP, above which begins to operate the payment mechanism for “GDP bonds”, Ukraine has passed in 2018. In terms of dollars of GDP last year exceeded $130 billion.

The problem is that, under the terms of the agreement with creditors, in the calculation of GDP uses data from the International monetary Fund (IMF). And the figures calculated by the IMF, strongly depend on the exchange rate of the hryvnia to the dollar.

The fact that the indicators calculated by the state statistics Committee of Ukraine, calculated in local currency. And the IMF in their calculations recalculate into USD at the exchange rate of the NBU.

In 2015, when the Ministry of Finance under the leadership of Natalia Yaresko released “GDP bonds”, the volume of Ukraine’s GDP, according to the IMF, amounted to us $90,5 billion Although in the two years before that in 2013 the dollar GDP of Ukraine was two times more – $of 179.5 billion.

Кабала на 20 лет. Как из-за роста курса гривны Украина заплатит кредиторам миллиарды долларов

Photo: imf.org

Twice the difference between the “dollar” GDP in 2013 and 2015 were formed due to the fall of the hryvnia exchange rate more than 3 times.

And from 2015 to 2018, the “dollar” GDP rose mainly because of the great inflation: prices in the national currency grew, but the course was changed a little. As a result, in terms of the dollar, all goods and services (which is GDP) rose sharply, and the growth of “dollar” GDP from $90 to $130 billion in just three years.

Thus, the figures for the “dollar” GDP, which is tied to payments on “bond Yaresko” directly depend on the exchange rate of hryvnia to the dollar. But this course, as we have seen in recent time directly dependent on the volume of purchases by non-residents government bonds.

The result is that the Finance Ministry is selling this year hryvnia bonds at an inflated interest attracted international financial speculators. They threw on the currency market of Ukraine the order of $4 billion, which bought the local currency. As a result, the hryvnia exchange rate has appreciated by 10%.

And this, in turn, led to the fact that GDP in terms of dollar will again exceed this year the threshold of $125.4 billion, and will begin to work the mechanism of calculating payments under “the bonds Yaresko”.

If the hryvnia exchange rate this year has not increased, but has fallen at least to the value of 30 UAH per dollar, Ukraine would be able to avoid exceeding the “dollar” GDP level of $125.4 billion, and, accordingly, the beginning of payments on “bond Yaresko”.

However, the actions of the Ministry of Finance on the strengthening of the hryvnia has not left Ukraine no chance to avoid these payments.

How much to pay

This year may be the first, when Ukraine will have to share with creditors of its GDP. According to Bank and IMF, economic growth will be more than 3%. Therefore, the second condition for the commencement of payments also should work.

And the amount you will have to pay Ukraine, depends on how much GDP grows this year.

For example, here is a small calculation. According to statistics, in the first half of 2019 GDP growth was 3.6%. If at the end of 2019 the GDP growth in Ukraine will reach 3.5%, the country will have to pay 15% of the amount exceeding 3% of 0.075% of the amount of GDP.

According to IMF estimates, the amount of Ukraine’s GDP in 2019 will be about $150 billion. Therefore, at the end of 2019 will have to pay creditors about $113 million (the equivalent of about 2.8 billion at current exchange rates).

If economic growth accelerates, for example, up to 5% per year, payments to creditors will increase significantly. You will need to pay 15% of the amount of GDP growth from 3% to 4%, and 40% of the amount of GDP growth exceeding 4%.

For example, if the GDP will remain the same $150 billion, the volume of payments to creditors will rise to $830 million or up to 20.5 billion.

And it will happen every year until 2040. According to experts, during this period, the creditors will receive up to $14 billion.

Recall that the original amount of the debt, instead of being issued “bonds of Ukraine”, amounted to only $3.2 billion.

Practically, this means that Ukraine in the next 20 years will be unprofitable to show GDP growth of over 4% per year. After all, 40% of this growth it will be necessary to pay creditors from the state budget.

Time bomb

In June of this year, Advisor to President Vladimir Zelensky on economy, Finance and tax matters Daniel Getmantsev in the article in “the Mirror of week” said that “GDP bonds” issued in the course of restructuring of the Ukrainian debt in 2015, are “a time bomb”. He urged to consider the possibility of early redemption.

Getmantsev described these papers as “outgoing laid by a team of financial time bomb sverhestestvennoe power.”

“Securities issued on onerous terms, not only can become a deterrent of economic growth, to which we all aspire, but also lead to payments that are multiples exceeding restructured in 2015, the debt” – the expert believes.

Now Danylo Getmantsev, a high – ranking representative of the government. In the parliamentary election, he was included in the list of the party “servant of the people” at No. 20. Now in Parliament he headed the Committee on Finance, tax and customs policy.

Another expert, an analyst of a major investment company “Сoncorde Capital” Alexander steam in Facebook wrote that if the government will implement the plan for economic growth, only to 2020-2026 years, Ukraine will have to pay $ 9 billion to the holders of “GDP bonds”.

In response to these statements by the Prime Minister of Ukraine Alexey Goncharuk said on 2 September that “fear of economic growth given the fact that it is necessary to perform any obligations, inadequate approach.” This was reported by “Country”.

In this connection it is interesting that the current Minister of Finance Oksana Markarova, a longtime ally and friend Natalia Yaresko. They share long-standing friendship and business relationship.

From 1998 to 2003 (with a short break) Oksana Markarova was an adviser to and Manager created by the U.S. private equity Fund Western NIS Enterprise (now in the management of Horizon Capital), which was led by Natalia Yaresko.

In 2013, as reported by “Nashi Groshi”, group of companies ITT, co-owner and the head of which was Oksana Markarova, bought “active-Bank”. Oksana Markarova was appointed Chairman of the Supervisory Board of the Bank, and a member of the Board Nova the owners have appointed Natalia Yaresko.

2015 Markarova began working as a Deputy Minister of Finance, which at that time was Natalia Yaresko.

Oksana Markarova and Natalia Yaresko still maintain friendly relations. This is evidenced, for example, sharing photos on social networks.

Кабала на 20 лет. Как из-за роста курса гривны Украина заплатит кредиторам миллиарды долларов

Photo: Facebook/ vladyslav.rashkovan

It seems that the current policy of the Ministry of Finance in the debt market coordinated with the organizers of the issue of “GDP bonds” in 2015, and is in their best interests.

As reported by “the Country”, the Cabinet of Ministers is planning the growth of real GDP in 2020 at the level of 3.7%. This script will be incorporated in the draft budget for 2020.

The Cabinet also predicts that in 2021, the Ukrainian economy will accelerate to 3.8%, and in 2022 – up to 4.1%. A more optimistic scenario, in 2021, the Ukrainian economy will accelerate to 5.5% in 2022, to 6.5%.

The country was told that the Minister of Finance brought a luxury building in Kiev from the bankrupt Bank to the firm.

Markarova also explained why communal tariffs will not be reduced.Source

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