Page 35 - BNE_magazine_05_2020

bne May 2020 Cover story I 35
Turkey
Some analysts think it would be too much of a political humiliation for Turkish President Recep Tayyip Erdogan to go to the IMF. After all, he rose to power lambasting predecessors for a Turkish financial crisis 19 years ago and said that Turkey, on his watch, would not need to turn to the Fund again. The populist strongman has even described the IMF as “the world’s biggest loan shark” and on April 13 he asserted that Turkey “will not bow down to the IMF programme, or any imposition that would indebt our country.” But the country’s economy is fragile and highly vulnerable to shutdown impacts of the pandemic. The Turkish lira has already been losing its value and Turkey could be heading for its second currency crisis in two years.
“Ankara needs to figure out a way of bailing out the economy without causing a balance-of-payments crisis,” Global Source Partners economists including Murat Ucer in Istanbul said in a report. “And because this is so difficult to do
on its own, the only practical solution, normatively speaking, is an IMF programme – no matter how unrealistic the politics of it may sound.”
Per Hammarlund, chief emerging markets strategist at SEB AB in Stockholm, has said that rather
than asking for Fund assistance, the government is more likely to request bilateral support from the US, China
or the European Union to restore confidence. Last month, Turkey officially asked the Fed to include the nation’s central bank in its dollar swap lines, people familiar with the decision were quoted as saying by Bloomberg on April 9. The very last thing Ankara will do is use its scant FX reserves to defend the currency, so the upshot is that it appears very likely that Turkey is facing yet another deep devaluation.
The cost of insuring Turkish debt against a default touched its highest level since 2008 on April 6.
Kazakhstan
As oil-producer Kazakhstan has built up significant FX reserves, has another $61bn in its national reserve fund and maintains a low level of sovereign debt. And thanks to its relatively small population of about 17mn people the social support programmes to help
the jobless are made much easier than in some of its more populated peers. Currently it has no IMF borrowings and that is not expected to change.
Uzbekistan
Uzbekistan is another country that probably won’t need much help. Having only just emerged from its three decade- long purdah under former president Islam Karimov it has little external debt and around $28bn as gross international reserves (GIR), half of which is gold. Nevertheless, Uzbek President Shavkat Mirziyoyev has ordered the Ministry of Finance to raise $1bn from international borrowing to fund a stimulus programme.
Who’s asking?
Ukraine
Negotiating a new programme
Ukraine’s IMF programme was suspended after Kyiv dragged its heels on reforms in 2018 and if a new deal is not agreed soon then the country will default on its debt and go into meltdown, possibility as soon as this summer.
Ukraine burned through $2bn of its precious gross international reserves (GIR) in the last week of March, or 8% of the total, to deal with panic buying for the dollar after oil prices collapsed that month.
It now only has $24bn left, which is not quite enough to cover the three months of import cover needed to keep the hryvnia stable. And it has $4.1bn of debt obligations to meet this year – mostly the repayment of loans from International Financial Institutions (IFIs) – that it cannot cover from its reserves without
a new mooted $5.5bn EFF from the IMF that will open up access to a total of some $10bn of IFI money, including loans from the World Bank and EU that are tied to a new IMF deal.
The yields on Ukraine’s 2028 Eurobonds blew out by 150bp at the end of March as the prospects for a new IMF deal faded, only to be rescued at the end of the month at the last minute when the Rada passed bank and land laws the fund has been insisting on. However, oligarch Ihor Kolomoisky, who is the target of the bank law and who is trying to regain control over Privatbank, which he looted of $5.5bn in 2016, is, at the time of writing, using his proxies in the Rada and on the banking committee to try to sabotage the law. Kolomoisky has also called the IMF deal a “road to nowhere” and says Ukraine should default on its debt to the multinational lender.
Without the IMF Ukraine faces the prospect of defaulting on its debt and years of depression, according to the consensus of observers.
Belarus
No Programme
Belarus has already said the “default” word and threatened in March to selectively default on its obligations
to the IFIs, according to First Deputy Prime Minister of Belarus Dmitry Krutoi. The Belarusian Finance Minister Maksim Yermolovich quickly walked those comments back a few days later on March 25 as the yields on Belarus’ Eurobonds soared.
But as bne IntelliNews reported, the Belarusian government and the National Bank of Belarus (NBB) are holding urgent discussions with the IMF for financial support, "in the face of economic challenges stemming from the worsening global economic situation and the coronavirus [COVID-19] pandemic", the regulator said on March 30. And the Belarusians hate doing business with the IMF, as the government of Belarus President Alexander Lukashenko resents the strings attached to the programmes.
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