Kyiv, July 10, 2015. The debt situations in Ukraine and Greece fundamentally differ. The only parallel one may draw is the problem of external debt servicing. However, the underlying issues are different, as are each country’s circumstances. The situation in Ukraine is not critical as in Greece, said experts during a round table titled “Public Debt Management: Greece’s Default, Moratorium and Other Factors Affecting Ukraine,” at Ukraine Crisis Media Center.
According to Ihor Burakovsky, Director of Institute for Economic Research and Policy Consulting, the credit system in Greece was centralized, which is typical of EU countries. EU member states, including Greece, cannot conduct their own monetary policy. This is a fundamental reason for Greece’s economic woes. Moreover, one cannot compare the magnitude of dept in Greece versus that in Ukraine. Greece’s external debt is EUR 317 billion, of Ukraine, USD 43.5 billion,” said Burakovsky.
To overcome the debt crisis, both countries must do more than restructure their debts. They must often pass rigorous and unpopular reforms, Burakovsky noted. Unlike Greece, Ukraine already benefits from reforms—on decentralization and in combatting corruption. At the same time Burakovsky emphasized that reforms are a continuous process, and must therefore continue uninterrupted. First, obligations taken in the framework of the Association Agreement with the EU need to be fulfilled.
Burakovsky also underlined that the above differences make results of a potential default different for Ukraine and Greece. “Under certain circumstances, default can become a policy instrument, same as a company’s bankruptcy does not necessarily mean its death. We are observing a full-fledged default in Greece. Nevertheless, a new round of talks with it started. If a default is possible in Ukraine, it’s going to be technical,” explained Burakovsky.
Pavlo Kukhta, a Reanimation Package of Reforms economist, agreed with the fundamental difference between the Ukrainian and Greek situations. “Our fundamental difference from Greece is that we are not dependent on creditors. Greece continues bargaining with the forces from which it keeps taking the credit. We are dealing with the IMF; not with private creditors. It is not so dangerous,” explained Kukhta. Moreover, according to him, restructuring will end in about six months while the reforms will proceed.
However, reforms are not on the agenda in Greece. There was no domestic need for reforms and their society did not want to reform, explained Kukhta. “It’s the other way around in Ukraine. Through the revolution, Ukrainians were firm to say that they want to change the way they live. If we take a look at history, countries either implemented reforms and changed or did not survive under similar circumstances,” he explained. Taras Kachka, Head of Ukraine Reforms Communications Taskforce added that in Ukraine, society is requesting reforms. “Society is accelerating the state. It demands to accomplish more and faster. We have the starting situation that is different from the one Greece. But often, tactical issues prevail over strategic ones,” noted Kachka.
Oleksandr Valchishen, Head of Investment Capital Ukraine’s (ICU’s) analytical department, agreed with the fundamental difference between how the situations are playing out in the two countries. The situation in Ukraine is better in terms of perspectives. In Greece, voters intentionally chose representatives of left-wing powers who are not reformers to rule the country. Due to their actions, the country gradually lost its creditworthiness. The credit Greece took out was increasing, while the markets closed for Greece as a borrower. Moreover, before the current government came to power, the debts had been restructured and their ownership transferred to the so-called official creditors, including the IMF and European Central Bank. Greece was negotiating with these official agencies but could not agree on an acceptable consolidation or a reforms program. “That is the fundamental difference. Greek government was not able to agree with key creditors. In Ukraine, the government is not only speaking but is also making steps to improve the perspective,” Valchishen noted. “We are watching the “primary budget balance” as the key figure for financial management by the Ukrainian government.” This is why Ukraine will likely succeed in avoiding a moratorium on debt as well as speculations on a default.
It is common practice to take initiative to renegotiate restructuring. It demonstrates government transparency. “Without having its external debt restructured, Ukraine’s economy would be burdened with debts to the extent that economic growth perspectives and restoring the wellbeing of citizens would be a huge problem. The country may stay in a permanent debt crises for decades,” underlined Valchishen. It is important to understand that Ukraine has already agreed with the official creditors and that the country is working to restore creditworthiness.
Today’s biggest problem is the threat of justifying corruption and lacking or piecemeal decisions regarding the war and Ukraine’s debts. “It may discredit everything that people were standing and dying for on Maidan,” concluded Burakovsky. In his turn, Kachka advised roundtable participants to concentrate on the pace of reforms in the country. He noted, given today’s conditions and the information war in particular, one must approach rumors and evaluations carefully.