Saturday, November 1, 2014

IMF and EU Fund Russia Indirectly

This past week a new deal was announced that will insure that gas from Russia gets to the Ukraine this winter and also on over to Europe. If you read this Reuters article, you will see that the bottom line to this deal is that Russia gets what it wants. As temperatures started falling, Europe wanted to make sure gas supplies were secure this winter. So the IMF agrees to allow the Ukraine to draw any funds it needs to pay off its debt for natural gas to Russia. The EU assures "unprecendented levels of EU aid will be disbursed in a timely manner" to make sure the gas keeps flowing.

Russia seems like the big winner for now. It got to annex the Crimea. It had also demanded that the Ukraine debt for prior natural gas be paid off. Not only did the IMF make sure this will happen, it allows the Ukraine to agree to the Russian demand that future gas sales for this winter be prepaid upfront. So IMF funds go to Russia by means of the Ukraine.

Below are some quotes from this article and then a comment.


"Ukraine, Russia and the European Union signed a deal on Thursday that will see Moscow resume vital supplies of gas to its ex-Soviet neighbour over the winter in return for payments funded in part by Kiev's Western creditors."

"With overnight temperatures already nudging below freezing in Ukraine, European Commission President Jose Manuel Barroso hailed an accord clinched in Brussels barely 24 hours before he and the rest of his team make way for a new EU executive."
"There is now no reason for people in Europe to stay cold this winter," he told a news conference after witnessing the signing of documents by the Russian and Ukrainian energy ministers and EU energy commissioner Guenther Oettinger."
"Worth $4.6 billion in total, the package calls for Ukraine to pay $3.1 billion in two tranches by the end of the year to cover debts for previous supplies from Russia's Gazprom , and Kiev will have $1.5 billion, some from existing accords with the EU and IMF, to pay for about 4 billion cubic metres of new gas until March, for which Russia is insisting on cash up front."
"Unprecedented levels of EU aid will be disbursed in a timely manner, and the International Monetary Fund has reassured Ukraine that it can use all financial means at its disposal to pay for gas," the European Commission said in a statement.
"Further work with the international financial institutions on financial assistance to Ukraine, also in relation to gas supplies, will still continue. But all three sides are reassured that Ukraine will have the necessary financial means."
"Asked at the joint news conference where Ukraine would get the money to buy new gas for its 45 million people, Oettinger noted that Kiev had already set the money aside to pay the agreed debt to Gazprom and that discussions with the Washington-based International Monetary Fund had clarified that Ukraine would be able to draw down more cash for pre-payments."
My comment: And so while the US tries to implement weak sanctions against Russia, the EU and the IMF are indirectly funding Russia by letting the Ukraine use their financial aid to pay Russia for gas. It seems like Russia is the winner so far having gotten most of what it wanted and not really suffering much from the sanctions. It also suggests the the EU is far less interested in imposing any real sanctions against Russia than the US. Russia appears to hold the trump card with its natural gas supplies to the Ukraine and the Eurozone.

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