European countries with a diagnosis of financial default: expectancy and fear of its announcement in Ukraine
This paper reviews the economic situation of European countries that today are in deep external debt crisis and drew close to financial default, that can be announced by the foreign creditors and investors who can not for some reason get in time or on demand their money (the principal amount provi...
Saved in:
| Published in: | Економiчний часопис-XXI |
|---|---|
| Date: | 2011 |
| Main Author: | |
| Format: | Article |
| Language: | English |
| Published: |
Інститут світової економіки і міжнародних відносин НАН України
2011
|
| Subjects: | |
| Online Access: | https://nasplib.isofts.kiev.ua/handle/123456789/47658 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| Journal Title: | Digital Library of Periodicals of National Academy of Sciences of Ukraine |
| Cite this: | European countries with a diagnosis of financial default: expectancy and fear of its announcement in Ukraine / V.I. Konchyn // Економiчний часопис-XXI. — 2011. — № 5-6. — С. 21-26. — Бібліогр.: 23 назв. — англ. |
Institution
Digital Library of Periodicals of National Academy of Sciences of Ukraine| id |
nasplib_isofts_kiev_ua-123456789-47658 |
|---|---|
| record_format |
dspace |
| spelling |
Konchyn, V.I. 2013-07-24T18:32:18Z 2013-07-24T18:32:18Z 2011 European countries with a diagnosis of financial default: expectancy and fear of its announcement in Ukraine / V.I. Konchyn // Економiчний часопис-XXI. — 2011. — № 5-6. — С. 21-26. — Бібліогр.: 23 назв. — англ. 1728-6220 https://nasplib.isofts.kiev.ua/handle/123456789/47658 339.72 This paper reviews the economic situation of European countries that today are in deep external debt crisis and drew close to financial default, that can be announced by the foreign creditors and investors who can not for some reason get in time or on demand their money (the principal amount provided for use funds and (or) interest on them). However, in the article the situation of Ukraine’s foreign debt is considered, which significantly increased as a result of financial management of banks, business entities and due to government and central bank policies during the Orange epoch. The prospects for economic development in Ukraine are outlined in view of external debt problem after coming into power the command of the Party of Regions. У статті розглядається економічна ситуація країн, які сьогодні перебувають у глибокій зовнішній борговій кризі й впритул наблизилися дофінансового дефолту, що оголошується з боку зовнішніх кредиторів та інвесторів, які не можуть з певних причин отримати вчасно або за вимогою свої кошти (основну суму наданих у користування коштів та (чи) відсотки за користування ними). Водночас, у статті викладено погляд на ситуацію із зовнішнім боргом України, що значно збільшився внаслідок господарювання економічних суб’єктів та державної політики уряду і НБУ протягом Помаранчевої доби, розкрито перспективи розвитку економіки з урахуванням проблеми зовнішньої заборгованості країни після приходу до влади команди Партії регіонів. В статье рассматривается экономическая ситуация стран, находящихся сегодня в глубоком внешнем долговом кризисе и вплотную приблизившихся к финансовому дефолту, который объявляется со стороны внешних кредиторов и инвесторов, не способных по определенным причинам получить вовремя или по требованию свои средства (основную сумму предоставленных в пользование средств и (или) проценты за пользование ими). Вместе с тем, в статье изложен взгляд на ситуацию с внешним долгом Украины, который значительно увеличился вследствие хозяйствования экономических субъектов и проведения государственной политики правительства и НБУ в период правления Оранжевой власти, раскрыты перспективы развития экономики с учетом проблемы внешней задолженности страны после прихода к власти команды Партии регионов. en Інститут світової економіки і міжнародних відносин НАН України Економiчний часопис-XXI Світове господарство і міжнародні економічні відносини European countries with a diagnosis of financial default: expectancy and fear of its announcement in Ukraine Європейські країни з діагнозом фінансового дефолту: очікування його оголошення для України Европейские страны с диагнозом финансового дефолта: ожидания его оглашения для Украины Article published earlier |
| institution |
Digital Library of Periodicals of National Academy of Sciences of Ukraine |
| collection |
DSpace DC |
| title |
European countries with a diagnosis of financial default: expectancy and fear of its announcement in Ukraine |
| spellingShingle |
European countries with a diagnosis of financial default: expectancy and fear of its announcement in Ukraine Konchyn, V.I. Світове господарство і міжнародні економічні відносини |
| title_short |
European countries with a diagnosis of financial default: expectancy and fear of its announcement in Ukraine |
| title_full |
European countries with a diagnosis of financial default: expectancy and fear of its announcement in Ukraine |
| title_fullStr |
European countries with a diagnosis of financial default: expectancy and fear of its announcement in Ukraine |
| title_full_unstemmed |
European countries with a diagnosis of financial default: expectancy and fear of its announcement in Ukraine |
| title_sort |
european countries with a diagnosis of financial default: expectancy and fear of its announcement in ukraine |
| author |
Konchyn, V.I. |
| author_facet |
Konchyn, V.I. |
| topic |
Світове господарство і міжнародні економічні відносини |
| topic_facet |
Світове господарство і міжнародні економічні відносини |
| publishDate |
2011 |
| language |
English |
| container_title |
Економiчний часопис-XXI |
| publisher |
Інститут світової економіки і міжнародних відносин НАН України |
| format |
Article |
| title_alt |
Європейські країни з діагнозом фінансового дефолту: очікування його оголошення для України Европейские страны с диагнозом финансового дефолта: ожидания его оглашения для Украины |
| description |
This paper reviews the economic situation of European countries that today are in deep external debt crisis and
drew close to financial default, that can be announced by the foreign creditors and investors who can not for some
reason get in time or on demand their money (the principal amount provided for use funds and (or) interest on
them). However, in the article the situation of Ukraine’s foreign debt is considered, which significantly increased
as a result of financial management of banks, business entities and due to government and central bank policies
during the Orange epoch. The prospects for economic development in Ukraine are outlined in view of external
debt problem after coming into power the command of the Party of Regions.
У статті розглядається економічна ситуація
країн, які сьогодні перебувають у глибокій зовнішній борговій кризі й впритул наблизилися дофінансового дефолту, що оголошується з боку
зовнішніх кредиторів та інвесторів, які не можуть з
певних причин отримати вчасно або за вимогою
свої кошти (основну суму наданих у користування
коштів та (чи) відсотки за користування ними).
Водночас, у статті викладено погляд на ситуацію із
зовнішнім боргом України, що значно збільшився
внаслідок господарювання економічних суб’єктів
та державної політики уряду і НБУ протягом Помаранчевої доби, розкрито перспективи розвитку
економіки з урахуванням проблеми зовнішньої заборгованості країни після приходу до влади команди Партії регіонів.
В статье рассматривается экономическая ситуация стран, находящихся сегодня в глубоком
внешнем долговом кризисе и вплотную приблизившихся к финансовому дефолту, который объявляется со стороны внешних кредиторов и инвесторов, не способных по определенным причинам
получить вовремя или по требованию свои средства (основную сумму предоставленных в пользование средств и (или) проценты за пользование
ими). Вместе с тем, в статье изложен взгляд на ситуацию с внешним долгом Украины, который значительно увеличился вследствие хозяйствования
экономических субъектов и проведения государственной политики правительства и НБУ в период
правления Оранжевой власти, раскрыты перспективы развития экономики с учетом проблемы
внешней задолженности страны после прихода к
власти команды Партии регионов.
|
| issn |
1728-6220 |
| url |
https://nasplib.isofts.kiev.ua/handle/123456789/47658 |
| citation_txt |
European countries with a diagnosis of financial default: expectancy and fear of its announcement in Ukraine / V.I. Konchyn // Економiчний часопис-XXI. — 2011. — № 5-6. — С. 21-26. — Бібліогр.: 23 назв. — англ. |
| work_keys_str_mv |
AT konchynvi europeancountrieswithadiagnosisoffinancialdefaultexpectancyandfearofitsannouncementinukraine AT konchynvi êvropeisʹkíkraínizdíagnozomfínansovogodefoltuočíkuvannâiogoogološennâdlâukraíni AT konchynvi evropeiskiestranysdiagnozomfinansovogodefoltaožidaniâegooglašeniâdlâukrainy |
| first_indexed |
2025-11-26T01:40:54Z |
| last_indexed |
2025-11-26T01:40:54Z |
| _version_ |
1850604380085026816 |
| fulltext |
21
ÅKÎÍÎ̲×ÍÈÉ ×ÀÑÎÏÈÑ-XXI5-6’2011
ѲÒÎÂÅ ÃÎÑÏÎÄÀÐÑÒÂÎ ² ̲ÆÍÀÐÎÄͲ ÅÊÎÍÎ̲×Ͳ ²ÄÍÎÑÈÍÈ
Problem statement. Economic growth in the world
economy that began in the early 2000’s, was held under the
deepening of the liberalization of international capital mar-
kets and significant international financial flows. Successive
phase of global economic growth ended in global financial
crisis in 2008. External debt crisis as a symptom of financial
troubles affected those countries, which in the process of
public consumption and providing economic development
overestimated their abilities in the accumulation and service
of foreign debt capital. The stability of the euro area and
the EU common market as a whole put into question due to
the critical situation of the external debt of Greece,
Portugal, Spain, Italy, Ireland, with signs of declaration of
default probability. The need for financial assistance to
ÓÄÊ 339.72
JEL Classification: G 15
Vadym Konchyn,
PhD, Associate Professor,
International Economics Department,
National Aviation University, Kyiv
EUROPEAN COUNTRIES WITH A
DIAGNOSIS OF FINANCIAL DEFAULT:
EXPECTANCY AND FEAR OF ITS
ANNOUNCEMENT IN UKRAINE
This paper reviews the economic situation of European countries that today are in deep external debt crisis and
drew close to financial default, that can be announced by the foreign creditors and investors who can not for some
reason get in time or on demand their money (the principal amount provided for use funds and (or) interest on
them). However, in the article the situation of Ukraine’s foreign debt is considered, which significantly increased
as a result of financial management of banks, business entities and due to government and central bank policies
during the Orange epoch. The prospects for economic development in Ukraine are outlined in view of external
debt problem after coming into power the command of the Party of Regions.
Key words: total external debt of country, governmental external debt, external debt of monetary authority, private
external debt, international investment position, balance of payments, foreign exchange reserves, financial default, toxic
assets, PIGS-countries, restrictive fiscal policy, restructuring of external debt.
В. І. Кончин
ЄВРОПЕЙСЬКІ КРАЇНИ З ДІАГНОЗОМ
ФІНАНСОВОГО ДЕФОЛТУ: ОЧІКУВАННЯ
ЙОГО ОГОЛОШЕННЯ ДЛЯ УКРАЇНИ
У статті розглядається економічна ситуація
країн, які сьогодні перебувають у глибокій зов-
нішній борговій кризі й впритул наблизилися до
фінансового дефолту, що оголошується з боку
зовнішніх кредиторів та інвесторів, які не можуть з
певних причин отримати вчасно або за вимогою
свої кошти (основну суму наданих у користування
коштів та (чи) відсотки за користування ними).
Водночас, у статті викладено погляд на ситуацію із
зовнішнім боргом України, що значно збільшився
внаслідок господарювання економічних суб’єктів
та державної політики уряду і НБУ протягом Пома-
ранчевої доби, розкрито перспективи розвитку
економіки з урахуванням проблеми зовнішньої за-
боргованості країни після приходу до влади ко-
манди Партії регіонів.
Ключові слова: сукупний зовнішній борг країни,
зовнішній державний борг, зовнішній приватний борг,
міжнародна інвестиційна позиція, дефолт країни, ток-
сичні активи, «країни-свині» (PIGS), рестрикційна фіс-
кальна політика, реструктуризація зовнішнього боргу.
В. И. Кончин
ЕВРОПЕЙСКИЕ СТРАНЫ С ДИАГНОЗОМ
ФИНАНСОВОГО ДЕФОЛТА: ОЖИДАНИЯ
ЕГО ОГЛАШЕНИЯ ДЛЯ УКРАИНЫ
В статье рассматривается экономическая си-
туация стран, находящихся сегодня в глубоком
внешнем долговом кризисе и вплотную прибли-
зившихся к финансовому дефолту, который объ-
является со стороны внешних кредиторов и инве-
сторов, не способных по определенным причинам
получить вовремя или по требованию свои средст-
ва (основную сумму предоставленных в пользова-
ние средств и (или) проценты за пользование
ими). Вместе с тем, в статье изложен взгляд на си-
туацию с внешним долгом Украины, который зна-
чительно увеличился вследствие хозяйствования
экономических субъектов и проведения государ-
ственной политики правительства и НБУ в период
правления Оранжевой власти, раскрыты перспек-
тивы развития экономики с учетом проблемы
внешней задолженности страны после прихода к
власти команды Партии регионов.
Ключевые слова: совокупный внешний долг стра-
ны, внешний государственный долг, внешний частный
долг, международная инвестиционная позиция, де-
фолт страны, токсические активы, «страны-свиньи»
(PIGS), рестрикционная фискальная политика, рест-
руктуризация внешнего долга.
22
ÅKÎÍÎ̲×ÍÈÉ ×ÀÑÎÏÈÑ-XXI 5-6’2011
these countries by the ECB, in particular the restructuring of
problem debts EU would mean reforming their economies
and a reorganization of the financial system. In the short
term this could lead to depreciation of the Euro. If this were
not done within the reserve funds of the European
Monetary Union (EMU), the IMF rather would help for the
governments of those countries in exchange for their
restrictive fiscal measures. In the medium future it will
deepen economic recession in the EU. The welfare reduc-
tion in EU after debt restructuring and financial readjust-
ment is imminent.
Ukraine, which declared its policy on deepening inte-
gration into the EU common market, faced a similar prob-
lem of service accumulated external debt, exacerbated
today because of undeveloped modern industrial produc-
tion and low inclusion of its economy into European
transnational production and trade networks and the lack
incentives to structural changes in this basis. Import-ori-
ented economic policy of the government led by Yulia
Timoshenko (2005, 2008–2009) and Yuriy Yekhanurov
(2005–2006), and the formation via WTO framework a
favorable environment for the inflow of financial and
banking credit transnational capital contributed in the past
five years to the development of local business, without
proper opening the country to free international capital
movement of multinational companies into industrial pro-
duction have created signs of poor condition of the coun-
try’s foreign debt.
Export-oriented policy of the government led by Mykola
Azarov (2010) is designed to remedy the situation, but due
to high current external debt, expressed in foreign key cur-
rency, Ukraine remains vulnerable to shocks related to the
problems of the debt prolongation, low global demand for
export products, including metallurgy and industrial chem-
istry, violent fluctuations in interest and exchange rates.
Under these conditions, most likely Ukraine will have in the
near future to repay the external debt by reducing domes-
tic demand.
Analysis of recent publications. Examining the prob-
lems of external debt, including servicing the public debt,
financial default diagnosis, its consequences and ways of
prevention (particularly in PIGS-counties), devoted a num-
ber of works of such leading foreign scientists, as
B. Eichengreen, C. Wyplosz, P. de Grauwe, D . Gross,
R. Cabral, P. Krugman, C.Lapavitsas, R. Nelson, K. Reinhart,
K. Rogoff, N. Roubini, S. Cecchetti.
Among domestic researchers who recently conducted
study on the external debt of Ukraine and also paid atten-
tion to analyzing and predicting the probability of default
of the Ukrainian economy should emphasize T. Vakhnenko,
V. Georgishan, Y. Zhalilo, O. Kyrychenko, A. Mnykh,
O. Soskin, V. Tomareva, V. Shevchuk, V. Yurchyshyn.
Unsolved aspects of the problem. In scientific litera-
ture there are no publications on the comparative analysis
of indicators of external debt of European countries with
the similar attributes of financial default parameters of the
Ukrainian economy. Also, attention is devoted to the rela-
tionship between external debt crises in the EU and the loss
of welfare in the overall EU market because of the weak
effects of EU-enlargement by new economic areas and
their economic characteristics. It should be noted that wel-
fare in EU common market can be achieved today predom-
inantly on the basis of Heckscher-Ohlin and Ricardian
(neoRicardian) comparative advantage, New economic
geography and providing structural changes.
Object-matter of the research and main material.
The study is a comparative analysis of indicators of external
debt of European countries which have the characteristics
of financial default with similar indicators of Ukraine;
detection of recent developments of external debt and its
service in Ukraine; evaluation of current state economic
policy of the Ukrainian government and the National Bank
of Ukraine in the context of the necessity of finding points
of contact between ensuring economic development and
management of international capital flows.
The default (country default) is a situation when ineffi-
cient state industrial, fiscal (budgetary) and financial policy
of government and monetary and exchange rate policy of
the central bank, and (or) haste assets & liabilities manage-
ment of companies, banks and (or) government of the
country, directed at expanding the borrowed capital, lead to
excess of the critical financial dependence of country resi-
dents on external and domestic contractors (creditors and
investors). The financial dependence of the country can
become critically high, especially in disadvantaged situation
in global financial and commodity markets. In these condi-
tions it is difficult to cover current debt by liquid financial
assets at low domestic income and revenues from foreign
trade, and ultimately, at low national savings. Companies,
banks and (or) the government will be unable or not willing
to fulfill their obligations in time and / or in full, which will
lead to a breach of credit and investment agreements and
allow the creditors to initiate debt collection procedures.
Systemic financial default on external debt includes
public default of the government and central bank on their
external debt and default of private resident companies and
resident banks that received foreign loans under an obliga-
tion to pay the principal amount and accrued interest to
external borrowers, and also foreign portfolio investments
(primarily into corporative bonds or investments in certain
financial assets) under the obligation to pay interest income
to foreign investors. It should be noted that subsidiaries
(branches) of transnational companies and banks operat-
ing in the country and economically (not by geographic
jurisdiction) seen as residents, can be considered as non-
residents if they serve the process of lending and portfolio
investment by their parent companies or other subsidiaries
located abroad for the counterparts in the recipient coun-
try, that is when they actually act as mediators. According
to the IMF definition «Gross external debt, at any given
time, is the outstanding amount of those actual current,
and not contingent, liabilities that require payment(s) of
principal and/or interest by the debtor at some point(s) in
the future and that are owed to nonresidents by residents
of an economy» [1]. Residence of economic subjects identi-
fied as the location of their business, as well as domiciliation
(place) of commitment appearance and payments for
these commitments.
Sovereign debt is related to external debt of country.
Sovereign debt is sovereign bonds issued in international
currency (rather in Euro or US dollar) and sold by domestic
government, banks and companies to non-residents abroad,
i.e. money borrowed from outside (it is equivalent of bor-
rowing money from other countries or public) to meet the
country’s spending. It has to be repaid on the maturity and
will have to pay the interest for those borrowings. This will
grow by size if a country can not increase the income from
taxes because of economic growth is very slow or can not
increase revenues from international investments and trade
because of low global economic presence and competitive-
ÅÊÎÍÎ̲×ÍÀ ÁÅÇÏÅÊÀ
23
ÅKÎÍÎ̲×ÍÈÉ ×ÀÑÎÏÈÑ-XXI5-6’2011
ѲÒÎÂÅ ÃÎÑÏÎÄÀÐÑÒÂÎ ² ̲ÆÍÀÐÎÄͲ ÅÊÎÍÎ̲×Ͳ ²ÄÍÎÑÈÍÈ
ness. Financial default on sovereign debt is considered by
economists as a next crucial manifestation of global eco-
nomic crisis after Dot com burst in 2000 and financial crisis
2008 which bring the whole global economy into default.
Important macroeconomic indicators, which enable to
estimate the risk of occurrence and announcement of
country default on external debt are: total external debt of
the country to its nominal GDP, public external debt of the
country (government and central bank external debt) to its
nominal GDP, private external debt of the country to its
nominal GDP, the net international investment position (IIP)
of the country to its nominal GDP, foreign exchange
reserves of central bank to total external debt of the coun-
try, total external debt of the country to goods and services
exports of the country.
Financial crisis and economic recession that engulfed
the entire global economy over the years 2008–2009, was
clearly shown in countries characterized by weak industrial
structure dominated sectors of resource and labor-intensive
goods, bloated public sector with significant public expen-
diture and also in countries that are rapidly losing signs of
global competitiveness, particularly the location of produc-
tion and tend to the economic periphery.
However, the impact of the crisis sustained economies
(including Ireland, Iceland, Spain, Hungary), having a high
level of competitiveness, knowledge-intensive industrial sec-
tors, strong tertiary sector (banking and non-banking finan-
cial, IT-services), but all of these economic characteristics
were acquired owing to the international capital movement
and these countries have become net recipients of loans,
direct and financial foreign investment and now face a sig-
nificant negative international investment position.
Countries that showed during global financial crisis
signs of debt crisis and indicate the probability of default
announcement are mostly the main Western European
countries, the so-called «PIGS” – Portugal, Italy, Greece and
Spain. Some economists entered into this rank Ireland and it
takes the form abbreviation PIIGS. Since the debt crisis fac-
ing Iceland, Belgium and Hungary.
Actual statistics clearly indicate the fiscal instability of
the EU common market, the euro area in particular and also
the European Economic Area. According to the Maastricht
criteria of fiscal stability all public debt (internal and exter-
nal) must not exceed 60% of GDP. It should be noted that
the governments of the European countries over the years
accumulated considerable debt of GDP (Greece: in 2009 –
126,8%, 2010 – 144%; Iceland: in 2009 – 107,6%, 2010 –
123,8%; Italy: in 2009 – 115,2%, 2010 – 118,1%%; Belgium:
in 2009 – 97,6%, 2010 – 98,6%; Ireland: in 2010 – 94,2%;
France: in 2009 – 77,5%, 2010 – 83,5%; Portugal: in
2009 – 76,9%, 2010 – 83,2%; Hungary: in 2009 – 78%,
2010 – 79,6%; Germany – 72,1%, 2010 – 78,8%; Great
Britain – 68,1%, 2010 – 76,5%; Austria: in 2009 – 69,3%,
2010 – 70,4%) [1; 2].
Speaking of external government debt in the structure
of total government debt, we estimate, that in 2010 it was
relatively large for Greece – 47,05% of GDP, Iceland –
33,37%, Italy – 29,78%, Portugal – 29,63%. Governments
of these countries have used for a long time fiscal incentives
for improving welfare by increasing domestic and foreign
public debt. Governments of Greece, Portugal and Spain
actually created in their society illusion of a high level of
prosperity on average in Europe without providing for such
living standard structural changes and the required charac-
teristics of global economic competitiveness (see Global
Competitiveness Index). Government expenditure on public
consumption and inspiration of economic development is
not covered by mobilized public revenues, which depend on
labor and capital productivity in economy. As a result, in the
euro area the «welfare bubble» of PIGS-societies occurs.
It should be noted, the debt crises in the EU are deepen-
ing, and external obligations of countries can not be cov-
ered by their insufficient revenues from foreign operations.
A serious problem in this regard is the inability to use inten-
sively potential trade and investment benefits that could get
the EU countries from further enlargement through new
members. We believe that in the current integration format
of EU the effects of comparative advantage in internation-
al trade continuously diminish and transfrontier competi-
tion for sales and favorable investment and production
locations aggravates despite the fact that comparative
advantage effects somehow still remain on the factually
saturated EU common market.
In addition, over the last decade European countries
have favorable access to financial capital at low interest
rates owing to significant liberalization of international
financial markets and the formation of euro area [3].
Because of low regulatory framework for setting budget
deficit ceilings and/or for preventing enormous external
debt such economies as Greece, Portugal, Spain and Iceland
reached critically high level of external indebtedness (see
table).
During the global financial crisis of 2008 international
investors began to withdraw their receivables, which sub-
stantially accumulated in form of toxic assets, from all geo-
graphical and functional segments whenever possible.
Requirements of investors and lenders affected Greek bor-
rowers, particularly government and private sector.
At the beginning of 2010 Greece’s current debt obliga-
tions to international investors were valued at $721 billion. In
April 2010 the Greek government, despite its newly issued
long-term bonds at high interest rates, announced the
impossibility of paying the current external and internal
commitments (budget deficit amounted to 13,6% of GDP
according to Eurostat) and made an appeal to the European
Central Bank and the IMF to pay off debts.
The consequence of these developments was the adop-
tion by the European Commission with the assistance of
IMF «The program of stability and growth», according to
which Greek government was forced to go on strict fiscal
measures - to bring the budget deficit to 3% of GDP. Greek
Ministry of Finance outlined the targets to gradually reduce
the budget deficit – up 8,7% in 2010 to 5,6% in 2011, to
2,8% in 2012 and to 2% in 2013 [4]. The course of govern-
mental reforms led to widespread social protests in the
spring of 2010. In order to maintain the stability of the euro
area and prevent the uncontrolled outflow of capital result-
ing from the growing distrust of international investors
expressed to some EU-economies the governments of
Latvia, Lithuania, Estonia (the countries-candidates on the
rapid entry into European Monetary Union), Italy, France
and Portugal were among the first who began fiscal restric-
tion, which brought about a dissatisfaction within European
society. Despite preventing measures, both governmental
and private foreign debt continued to grow steadily in 2010
in Greece, Spain and Ireland.
Economists B. Eichengreen [5], P. de Grauwe [6]
K. Reinhart [7], C. Wyplosz [8] indicated that the probability
of default contagion is significant in Portugal, Ireland and
Spain. R. Cabral sees one way to solve a problem – immedi-
24
ÅKÎÍÎ̲×ÍÈÉ ×ÀÑÎÏÈÑ-XXI 5-6’2011
ѲÒÎÂÅ ÃÎÑÏÎÄÀÐÑÒÂÎ ² ̲ÆÍÀÐÎÄͲ ÅÊÎÍÎ̲×Ͳ ²ÄÍÎÑÈÍÈ
ately to begin the process of restructuring the public debt in
the countries of euro area which have a critical external debt.
Of course, this would lead to loan restriction because of ris-
ing interest rates, deepening economic recession and poten-
tial loss of lenders in the EU common market. At the same
time it would give good signals for credit markets and debtor
countries face in the future with higher interest rates on new
loans and higher degree of responsibility and reliability with-
in the European Community [9]. However, economists
believe that at the European Commission and EU Council
level it is necessary to implement directives concerning more
tighten restrictions of external public debt ceilings for the
governments of euro area and other EU countries.
Table 1 shows that the Ukrainian economy looks finan-
cially very stable compared with European countries with a
high risk of probability of default announcement. At the
same time, according to CMA Global Sovereign Credit Risk
Report Ukraine in the end of 2010 took a 6th place in the
rank of countries which have the most risky sovereign debt
positions [10].
While during the crisis period in 2009 all indicators of
external financial dependence significantly worse for
Ukraine, in 2010 some of them gradually stabilized. It
should first talk about the significant increase in foreign
exchange reserves of the central bank, reduction of the
negative balance of inter-
national investment posi-
tion by reducing a large part
of corporate debt. Im-
portant role played the sta-
bilization of the hryvna
exchange rate with the ten-
dency of an appreciation
and the increase in GDP and
export value. At the same
time governmental and
central bank debt positions
worse again.
Do the results mean that
the quantitative improve-
ment of some external
financial macroeconomic
indicators will improve the
quality characteristics of
Ukrainian economy devel-
opment? Let it analyze ex-
ternal debt performance of
Ukraine via economic pro-
cesses that lie behind it.
During the Orange peri-
od the deindustrialization
of Ukrainian economy was
followed by increase of
dependence on commodity
imports and external debt
capital. Instead of opening
the economy to foreign
direct investment of large
industrial transnational
companies and implemen-
tation by government and
parliament liberal institu-
tional and regulatory mech-
anisms for improving the
performance of Economic
Freedom Index and the Global Competitiveness Index, the
Orange authorities gave impetus to expand activity of
domestic medium and small businesses that mainly consist-
ed in the sale of imported consumer and industrial goods to
Ukrainian society and on this basis in development of con-
sumer lending at still low purchasing power of the Ukrainian
population.
The lending process to purchase imported goods actual-
ly carried out by domestic banks, which in turn borrowed
money for this purpose from big transnational banks. It
forced up final prices for the consumers and they remained
higher than if there were allowed transfer pricing mecha-
nisms within multinational banks in Ukraine.
Meanwhile Orange government could not create incen-
tives to reduce the share of influence on the economic sys-
tem of low-technological industries, such as mining, met-
allurgy and industrial chemistry. These industrial sectors
are still creating the illusion that Ukraine has to be consid-
ered as industrial country and the exchange of domestic
exported goods with low added value to imported goods
with high added value explains large foreign debt.
Moreover, for the last five years, Ukraine has strengthened
the status of the resource country, and its revealed com-
parative advantages for resource products in international
trade only increased compared to other tradable goods.
Table
Indicators of the external indebtedness of countries with its critical level,
compared with Ukraine for the years 2008-2010
Джерело: [5, c. 57]
25
ÅKÎÍÎ̲×ÍÈÉ ×ÀÑÎÏÈÑ-XXI5-6’2011
ѲÒÎÂÅ ÃÎÑÏÎÄÀÐÑÒÂÎ ² ̲ÆÍÀÐÎÄͲ ÅÊÎÍÎ̲×Ͳ ²ÄÍÎÑÈÍÈ
Global economic crisis and recession in the global
demand exacerbated the problems of foreign economic
settlements of Ukraine. Change of the government team in
2010 led to a radical revision of the principles of state poli-
cy. The new government coalition initiated fiscal discipline
and reduction of the disbalance in balance of payments by
force of hidden strengthening regulation of the import-ori-
ented private sector.
Government external debt to GDP (%) decreased from
15,17% in 2009 to 14,18% in first half of 2010. The new gov-
ernment coalition managed to get only part of the planned
loan funds from the IMF and the World Bank. So in the
credit line «help the authorities in carrying out reforms and
elimination of economic crisis”, which involves the alloca-
tion of $15,15 billion within 29 months, the government has
already received in August 2010 to $1 billion to cover the
budget deficit [11] and $0,89 billion to reinforce the
exchange reserves of National bank of Ukraine. In this situ-
ation, debt repayment of the prior periods covered better
than in 2009 due to increase the external government debt
in the first half of 2010 compared with 2009 at $1,5 billion
(up $17,8 billion to $19,36 billion) and owing to GDP growth
in 2010.
From January 2011 government had to get another $1,5
billion [12] in exchange for pension reform, fiscal stabiliza-
tion measures, strengthening independence of central bank
on government and transparent foreign exchange frame-
work, including removal quite a number of foreign exchange
restrictions to restore investor confidence and support
inflow of capital.
The declared reforms have been postponed because of
political struggle for business interests of different business
groups and due to resistance of the Ukrainian society of
their mechanisms. This leads to the situation when the gov-
ernment can not take the next tranche from the IMF
because it has the obligations which it can not or does not
want to bear eventually.
Prime Minister Mykola Azarov understood that it is pos-
sible to finance the budget deficit not at the expense of the
IMF loans, but via issuing sovereign eurobonds due to
increasing demand of international investors for them.
Though the government eurobonds are an excellent basis for
activation of balance of payments in short-term period, it
should to emphasize that this external loan artificially main-
tain the welfare of inefficient Ukrainian public sector and
provoke in the long-term period problems of external debt
service. Moreover, interest rates on eurobonds are higher
than the rate of the IMF (7,95% compared to 3,5% annual-
ly). In order to conserve unreasonable social standards rela-
tive to real factor productivity for keeping loyalty of poten-
tial electorate and because of unwillingness to implement
actual structural changes in the economy, the use of more
expensive debt instrument is well-reasoned for Party of
Regions.
Some experts say that the Ukrainian government does
not suffer because of termination of IMF assistance. Since
2011 IMF tranches are no longer going to finance the bud-
get deficit, coming exclusively to the accounts of the NBU.
Mykola Azarov informed that on 16 February 2011 on the
fulfillment of Law of Ukraine «State Budget of Ukraine for
2011» Ministry of Finance carried out a bond issue of for-
eign government loan in 2011 of $1.5 billion maturing in 10
years at an interest rate of 7,95% per annum. Organizers of
the issue are investment banks JPMorgan, Morgan Stanley
and VTB Capital PLC.
Value of total public debt to GDP will likely grow, if the
Ukrainian government still finds common ground with the
IMF on fiscal stabilization. The financing of governmental
investment projects via World Bank loans in view of the hold-
ing Ukraine-2012 will increase the external debt position.
Closed circle for a government coalition, represented
basically by the Party of Regions, is a lack of non-inflation-
ary financial funds which shall be forwarded to realization
of declared social and economic reforms, insuring econom-
ic welfare of population. Get these funds today without
substantial opening of the country to transnational capital
can only be through loans of international financial and
credit institutions. Instead of a liberal industrial and finan-
cial policy of enabling the establishment and operating in
Ukraine subsidiaries of TNC in real sector and the creation
of conditions for free international movement of corporate
finance and banking capital in Ukraine through the legisla-
tive consolidation of norms for functioning in the country
subsidiaries of transnational banks, the government chose
unadvised alternative. It is clear that above mentioned
processes would, of course, worse the net international
investment position of Ukraine, but contribute in the long-
term perspective to structural changes, greatly expand the
tax base, increase revenue collection and reduce the pres-
sure on the budget deficit.
The government rejects such scenario and proposes
another way. For obtaining regular loans from the IMF,
which in all other things being equal offers governments to
reduce the budget deficit and ensure fiscal discipline, the
Ukrainian government plans pervasive fiscal restriction,
resulting in cuts in public spending and a primitive structur-
al optimization – such as raising the retirement age for
women in the framework of pension reform, higher gas
prices for utilities and households by 50% from 15 April
2011, job cuts state employees within the administrative
reform, reduction of social benefits and also expenditures
on education and science, etc., the strengthening of the tax
burden on the population and small and medium business
that is not affiliated with the government. Ukrainian society
is constantly forced upon the idea that the IMF requires the
government to just such a scenario to solve the problems
that there is no discussion in the publicity for other complex
alternatives that are in the arsenal of the structural recom-
mendations of the IMF.
Following the logic of actual government, fiscal policy
restriction would harmonize with the regime of fixed
exchange rate of the national currency. Of course, the
managed-floating exchange rate, which is practiced by the
National Bank of Ukraine, in fact in certain time periods
may acquire characteristics of fixed one and stabilize
exchange market through the active foreign exchange
interventions, carried out by the NBU on the open market.
Scenario of fiscal restriction with the managed-floating
rate would lead already in the short- and medium-term to
reduction of the life standard of Ukrainian, lowering
propensity to consume imported goods and services. At the
same time the reduction of external private debt would
occur (if the business is not affiliated with the govern-
ment). Fiscal restriction measures should reduce the pres-
sure of private sector on external financial dependence of
Ukraine. Implanted under Orange period consumerism in
Ukraine would disappear.
In the first half of 2010 external debt of National Bank
of Ukraine decreased by $355 million (from $6,21 to $5,855
billion), indicating that debt repayments made on long-
26
ÅKÎÍÎ̲×ÍÈÉ ×ÀÑÎÏÈÑ-XXI 5-6’2011
ѲÒÎÂÅ ÃÎÑÏÎÄÀÐÑÒÂÎ ² ̲ÆÍÀÐÎÄͲ ÅÊÎÍÎ̲×Ͳ ²ÄÍÎÑÈÍÈ
term obligations that compensated the new loan inflows.
Moreover, for a half year exchange reserves rose by $4.4
billion owing to the active foreign exchange intervention
aimed at the purchase of key currencies on the open mar-
ket. So we can talk about the sufficiency of exchange
reserves in Ukraine. Even though NBU received in August
2010 the first tranche in the IMF credit line to reinforce its
foreign exchange reserves in the amount of $890 million,
the foreign debt of the NBU is not critical. It should be
noted that the Ukrainian population and exporters are
today the major source of foreign exchange reserves of the
NBU. It is actually re-orientation of foreign exchange sav-
ings for the benefit of foreign exchange reserves of the
monetary institution. NBU seeks in the periods defined for
the repayment of country’s external obligations (so, in the
periods of capital outflows from the country), to mobilize
its foreign exchange reserves, maintaining macroeconomic
stability. However, the majority of Ukrainian population
forced today because of rising cost of living at stagnant
wages to sell the saved foreign currency at artificially low
exchange rate regulated by NBU, which means reducing
potential consumption of Ukrainian in future periods.
External debt of the private sector in 2010 declined up
67,55% (2009) to 62,13% of GDP. This means that the pri-
vate sector intensively repaid expired in 2010 long-term
loans with the maturity data. At the same time, the volume
of new long-term credit obligations of private sector is
sharply reduced, that ceteris paribus in the next periods
brings the business to downturn, reducing susceptibility to
lending by international credit money and eventually reduc-
ing a domestic consumption. These processes also indicate
the reduction of negative net international investment posi-
tion – up -34,25% of GDP in 2009 to -28,32% of GDP in
2010.
Ukraine’s gross external debt jumped 5,12% in the fourth
quarter 2010 as the country sold eurobonds and private com-
panies borrowed. The external debt totaled $117,3 billion as
of Jan. 1, compared with $111,6 billion as of Oct. 1, 2010.
State foreign government debt jumped to $25 billion
through the end of December, 2010, compared with $23,6
billion at the end of the previous quarter. Private companies’
debt rose to $50,8 billion, compared with $47,6 billion at
the end of the third quarter.
Gross external debt jumped 13,5 % in all of 2010. Of the
total debt, 70,4 percent was denominated in dollars and
10,7 percent in Euros. External debt due within the next 12
months totaled $47,3 billion.
Conclusions. Analyzing the external debt indicators for
European countries (particularly PIIGS) and Ukraine, assess-
ing the recent trends in the formation and service of the
external debt of Ukraine, one can predict that the probabil-
ity of financial default in Ukraine quite low. Planned fiscal
policy of government implies introduction of stricter state
regulation of commodity and financial markets in order to
reduce external financial dependence of Ukraine, above all,
the dependence of the private sector as the main source of
risk that after the Orange Revolution began to reveal itself
in a growing foreign private debt and, as a result, total
external debt. Reducing the international investment posi-
tion and a negative balance of current operations by cur-
tailing imports flows of goods is likely to continue in the
next periods and it inhibits growth of external debt.
However, fiscal policy of government, monetary and for-
eign exchange policy of National Bank of Ukraine may hin-
der the qualitative structural changes which are necessary
for integration of Ukraine into the EU common market.
Such changes can occur, as the experience of CEE countries
shows, under import-oriented economic policy and opening
the country to free international capital inflows in the
industrial production.
Reference
1. The Measurement of External Debt: Definition and Core
Accounting Principles – IMF, 2003. – http://www.imf.org/exter-
nal/pubs/ft/eds/Eng/Guide/file2.pdf
2. Óðÿä ñõâàëèâ ïðîåêò Ìåìîðàíäóìó ç ÌÂÔ [Åëåêòðîííèé ðå-
ñóðñ]. – Ðåæèì äîñòóïó : http://www.epravda.com.ua/news/
2010/12/14/262045/
3. Nelson R., Belkin P., Mix D. Greece’s Debt Crisis: Overview, Policy
Responses, and Implications. – CRS Report for Congress. – April
2010. – 18 p.
4. Greek Ministry of Finance, Update of the Hellenic Stability and
Growth Programme, January 2010. – http://www.mnec.gr/en/
economics/growth_programme_2005-8/
5. Eichengreen, Barry (2007). Eurozone breakup would trigger the
mother of all financial crises, VoxEU.org, 19 November.
6. De Grauwe, P (2009). Greece: The start of a systemic crisis of the
Eurozone?, VoxEU.org, 15 December.
7. Reinhart, Carmen (2010). «From financial crash to debt crisis»,
Interview by Romesh Vaitilingam, VoxEU.org, 9 April.
8. Wyplosz, Charles (2010). And now? A dark scenario, VoxEU.org,
3 May.
9. Cabral R. (2010). The PIGS’ external debt problem. –
http://www.voxeu.org/index.php?q=node/5008
10. List of National Debt by country. – www.economicshelp.org
11. Øåâ÷óê Â. Î. Ìàêðîåêîíîì³÷í³ ðèçèêè ïðèñêîðåíî¿ àêóìó-
ëÿö³¿ çîâí³øíüîãî áîðãó â åêîíîì³ö³ Óêðà¿íè / Â. Î. Øåâ÷óê //
Ñòðàòåã³÷í³ ïð³îðèòåòè. Íàóêîâî-àíàë³òè÷íèé ùîêâàðòàëüíèé
çá³ðíèê. – 2009. – ¹ 2 [Åëåêòðîííèé ðåñóðñ]. – Ðåæèì äîñòóïó :
http://old.niss.gov.ua/book/StrPryor/11_2009/24.pdf
12. Óêðà¿íà îòðèìàëà ïåðøèé òðàíø êðåäèòó ÌÂÔ [Åëåêòðîííèé
ðåñóðñ]. – Ðåæèì äîñòóïó : http://www.epravda.com.ua/
news/2010/08/2/243575/
13. CMA Global Sovereign Credit Risk Report 2011. –
http://www.cmavision.com/images/uploads/docs/CMA_Global
_Sovereign_Credit_Risk_Report_Q4_2010.pdf
14. De Grauwe, Paul (2010). A Greek Endgame, Centre for European
Policy Studies.
15. IMF Database. – http://dsbb.imf.org/Pages/SDDS/ External
Debt.aspx
16. IMF Ecxhange Reserves. – http://www.imf.org/external/
np/sta/ir/IRProcessWeb/colist.aspx
17. Ken Rogoff Expects Slow Growth and Sovereign Defaults. –
Advisor Perspectives. Actionable Advice for Financial Advisors:
Newsletters and Databases Focused on Investment Strategy,
2010. – http://www.advisorperspectives.com/newsletters10/
Ken_Rogoff_Expects_Slow_Growth_and_Sovereign_
Defaults.php
18. Krugman P. The Return of Depression Economics and the Crisis
of 2008. – W.W. Norton&Company, New York, London, 2009. –
207 p.
19. PIGS (economics). – http://en.wikipedia.org/wiki/PIGS_(eco-
nomics)
20. The World Factbook, United States Central Intelligence Agency,
accessed on May 23, 2010.
21. World Bank Database. – http://data.worldbank.org/indica-
tor/DT. DOD.DECT.CD/countries?display=default
22. Çîâí³øí³é ñåêòîð/ Îô³ö³éíèé ñàéò Íàö³îíàëüíîãî áàíêó Óê-
ðà¿íè. – http://www.bank.gov.ua/Statist/ses.htm
23. Òîìàðåâà Â., Ãåîðã³øàí Â. Àíàë³ç âïëèâó çîâí³øíüîãî áîðãó
íà åêîíîì³÷íèé ðîçâèòîê äåðæàâè / Â. Òîìàðåâà, Â. Ãåîðã³øàí
// Äåðæàâà òà ðåã³îíè. Ñåð³ÿ: Åêîíîì³êà òà ï³äïðèºìíèöòâî. –
2010. – ¹ 2. – Ñ. 198–202.
Ñòàòòÿ íàä³éøëà äî ðåäàêö³¿ 19 êâ³òíÿ 2011 ðîêó
|