Ukraine’s Unimpeachable New Program Sentiments

Ukraine shares looked to reverse MSCI Index double-digit loss into the new year, as the Zelinsky government with an overwhelming parliamentary majority and no elections until local ones in late 2020 set out to ink a successor IMF deal with shared anti-corruption and privatization elements. Another $5 billion-plus extended arrangement is under negotiation, although it may be precautionary despite large public and private sector debt repayments if foreign direct and portfolio investment jumps on expected land reform and refusal to return failed Privatbank to controlling oligarch hands. The relationship between that shareholder Kolomosky and the President since they teamed on the former’s television network is at the heart of banking system and donor direction, since a clean break is presumed to firm cleanup credentials. The central bank has been the target of media and personal attacks for nationalization and criminal prosecution and asset recovery steps, with billions of dollars in insider cash allegedly spirited out of the country. Kolomosky’s wealth remains frozen despite London court action, but the cohort’s reach is illustrated by close ties with members of the Trump inner circle among associates of accused money launderer Firtash around the impeachment scandal. Lawyer Giuliani reportedly signed up several Ukrainian clients seeking diplomatic favor and competition with the Naftogaz energy monopoly. Former and current administration officials lobbied for personnel and commercial changes and were part of a push to investigate former Vice President Biden’s son previously serving on the board of a private rival, according to witness testimony to Congress.

The economic backdrop has brightened for Fund facility renewal with growth estimated at 4% through next year on 6.5% inflation in the third quarter, enabling a 100 basis point benchmark rate drop. Food prices are under control with a good harvest, and the currency has stabilized around 25/dollar on a 3% of GDP current account deficit. The 2% budget gap target is on track, and higher gas transit fees and tax collection are possible for further consolidation. Warrants in the original external debt restructuring should pay off with growth above 3%, but the 50% ratio to output remains worrisome as technocrats in Kiev mull another haircut or maturity extension proposal. Geopolitical adversary Russia has a suit outstanding from the Yanukovych era for un-serviced loans, as its banks have taken over networks in Crimea and the east. Presidents Zelensky and Putin may meet amid an unobserved cease-fire in the civil war, as thousands of families are displaced in the Donbas region without access to humanitarian relief. Russian growth is half Ukraine’s with oil exports subject to tricky production understandings with OPEC, and big infrastructure projects slow to materialize as a means also to defuse popular protests. The central bank tapered interest rates and the Kremlin drew on the stabilization fund for modest stimulus, with inflation within the 4% medium-term target. It plans to “de-dollarize” the sovereign wealth pool to avoid Washington’s sanctions ambit and ride ruble appreciation, as it also unveiled an exchange blueprint for smaller and lesser-known companies in the net to raise debt and equity locally. Despite a 30% MSCI surge share manipulation persists in creative forms, the latest a Foundation created for technology listing Yandex to ensure against state ownership removal.

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