Got $50B? IMF's Ukraine Money Pit & Franklin Templeton

♠ Posted by Emmanuel in , at 1/26/2015 01:30:00 AM
There's "postwar reconstruction," but the IMF has completely lost the plot with "duringwar reconstruction."
I am unsure of many, many things, but this I know: Ukraine is a bottomless money pit. I figured this out a long time ago when I said that if the West really wanted to "punish" Russia, it should have let the Putinists "have" Ukraine. Think of the untold sums of money the Russians would have wasted instead of the West. Predictably if stupidly enough, the powers-that-be thought that the "country" of Ukraine was worth saving and have forced the IMF to act on their cause. You can read the hilarious econospeak elsewhere, but the situation remains the same: they believe a financial fix is possible for an ongoing security crisis. I have never heard of such a thing.

[I] As I keep repeating, there is no such country "Ukraine" anymore as the Crimea has been annexed and its eastern parts are controlled by externally-funded militias. To expect "Ukraine" to pull through is like expecting "Afghanistan" or "Somalia" to do the same--these are failed states whose problems are far beyond the salvation of IMF-style financial fixes. If there were IMF peacekeeping forces I'd be a smidgen more optimistic about its prospects, but no. Why does the IMF persist in this nonsense, though? Again, Western powers-that-be have forced it to "do something" about Ukraine despite its unsuitability to the task of keeping a crumbling nation apart. Witness:
The country has been choked by the loss of control to pro-Russia rebels of its key industrial region in the east, sapping productive output and revenues for the government. A new IMF program "will allow us to gain access to additional resources, which in turn will enable us to return to economic growth, restore adequate foreign exchange reserves, and ensure economic and financial stability going forward," said Ukrainian Finance Minister Natalie Jaresko.
Whoever this Natalie Jaresko woman is, she is completely nuts since she suffers from the same delusion that the IMF which has failed time and again to resuscitate Ukraine and must now do so under conditions of civil war will succeed. The situation is surreal:
With Ukraine it has to reach into its pockets for a country brought economically to its knees by nine months of civil war. "The IMF is entering unchartered waters," [former IMF Board Member Domenico] Lombardi said. "In recent times it hasn't supported a country at war with such a substantial package..."

Peter Doyle, a former economist with the IMF and strong critic of its policies, said it would be a mistake, and that the IMF is being "compulsive" in a desire to "be visible". "Until the civil war is successfully resolved, the IMF is absolutely the wrong institution to take the lead in financing," he told AFP.

"In particular, given the conflict, continued IMF lead compromises further its rules requiring that borrowing country policies are sufficient to secure sustainability." Moreover, the IMF is weighing more money for Ukraine just as it mulls a restructuring of the country's huge debt to commercial lenders, already equal to more than 73 percent of gross domestic output.
We then get to the kicker: Ukraine is estimated to need another $50 billion just to stabilize its financial situation--to say nothing of its security situation--likely making Greece like a bargain for the West since at least it's not at war (yet?):
It is a complicated equation, according to Mitov. A debt restructuring, especially one that forces investors to write off some debt, would alleviate financial pressures on the country. But it also "risks alienating foreign creditors for quite some time," meaning Ukraine would have limited access to debt markets, he noted.

The financing needs are Dantean. According to the Institute of International Finance, the country will need $50 billion from now through 2018, as it sinks into its worst recession since the Second World War.
[II] Speaking of which, one of those hoping for a bailout is Franklin Templeton, the American investment firm. It is on the hook for a lot of Ukrainian debt denominated [demoninated?] in US dollars. A massive haircut for those dumb enough to have bet on Ukraine is certainly in order, but we once again get into this Asian financial crisis-like situation that whenever American financial firms get in trouble during foreign misadventures, Uncle Sam is always there to bail them out:
[Franklin Templeton's Michael] Hasenstab will be an important figure in these [debt restructuring] negotiations. He runs bond funds for Templeton that held $8.8 billion of Ukrainian debt at the end of September 2014. (They have not yet reported newer data.) In June, the fund manager, who has won big on Irish and Hungarian debt in the past, painted a rosy picture of this investment...

Granted, it only constitutes a small part of the $185 billion in bonds he runs for Templeton, but for someone who has a reputation as a successful contrarian to maintain, the almost inevitable restructuring is a blow quite out of proportion to the actual financial effect of the losses. 
You have to give credit to Franklin Templeton though for daring to stay with their Ukraine, er, "investments." As the saying goes, no guts, no glory--but this time around it's been proven foolhardy more than anything else. That said, being paid, what, 60 cents to the dollar for bonds as the restructuring is believed to offer when they bought these bonds at 80 cents isn't so bad.

For the funders of the IMF, though, it's another story since their commitment seems limitless and open-ended--a money pit, in fact.