Monday, March 17, 2014

The IMF and the Ukraine - Follow the money

As we keep watch on the Ukraine situation we will continue to follow the role that the IMF plays in this situation. Here we have an update that indicates the IMF is working quietly in the background to get money to the newly installed government. While $15 Billion has been mentioned, this article indicates the true amount needed is much more. 

A few quotes from this article and then a comment.

"Ukrainian bond prices are holding up better than expected in the stand-off with Russia because investors think the International Monetary Fund might not impose tough conditions in an expected aid program due to Kiev's political importance to the West."

"Rather like Pakistan in 2001, which was seen as key in the fight against al Qaeda, some in markets say the IMF, from which Ukraine is seeking financial support, could hand it the money it needs to avoid a default without many of the usual strings."

"The IMF declined to comment on its talks with Ukraine but its head, Christine Lagarde, said last week it should finish its fact-finding mission there by Friday.
Kiev has asked for at least $15 billion, but officials at the Fund and places like the European Bank for Reconstruction and Development, acknowledge it will need to be quite a lot more."

"But ultimately bond market experts say it is likely to come down to a political decision - whether or not the West and the IMF dangle the easy-money carrot."
"We are seeing East against West, which makes it more difficult for the IMF," said Zsolt Papp, who helps oversee $2.6 billion of emerging-market debt at Union Bancaire Privee in Zurich. "Ukraine is just the pawn here."

my comment:
Initial western media reporting on this painted a picture that the Ukraine was a spontaneous revolt of the people. But now this article says "Ukraine is just the pawn here." We suspect this article is more accurate. We believe it is very important to Western leaders that the IMF be seen as the problem solver here. In the past we would be seeing the US take the lead, but here we see the IMF being positioned to step forward. To be the hero so to speak.
We will continue to follow this story from this angle. That being that this is where the IMF emerges to be viewed as a "global problem solver". Expect a continued push to get the US House to approve the increased IMF funding and voting reforms as part of this story. 
Eventually, we think we will see the IMF emerge as the the new global "go to" entity for crisis solving. If this fails to happen and IMF members divide over all this instead of becoming united under the new funding and voting reforms, it will be viewed as a huge disappointment in our view by Western leaders who support the IMF. 
It will make it more difficult for the IMF to implement any kind of new currency reset or global reserve currency in the event of a new financial crisis. So this is what we will watch as this situation unfolds. The sanctions look like just a big show with no substance so far.

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