Even After Ceasefire Russia Holds Financial Advantage Over Ukraine

Putin, who has annexed Crimea and is widely accused of stoking a separatist revolt in eastern Ukraine, is seeking to maximize economic leverage to prevent pro-Western President Petro Poroshenko fulfilling a far reaching free trade agreement with the European Union.

Under Russian pressure, the EU and Ukraine agreed this month to postpone implementation of the accord until the end of 2015 after Kiev accepted a ceasefire with the pro-Russian rebels in a conflict that has killed more than 3,000 people.

At the heart of the bond issue is an unusual clause in the covenant which stipulates “total state debt and state-guaranteed debt should not at any time exceed an amount equal to 60 percent of the annual nominal gross domestic product (GDP) of Ukraine”.

As Ukraine’s economy has shrunk and its currency has fallen, that level may already have been breached – Commerzbank analysts reckon the current hryvnia exchange rate around 13 per dollar UAH= is the trigger point. If not, debt-to-GDP will top 67 percent by end-2014, the International Monetary Fund predicts.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza