Uncle Volodya says, “If you’ve ever wondered what God thinks about money, take a look at some of the people he gives it to “
First, I just wanted to mention that this has been a great month for us here at The Kremlin Stooge; passing through 500,000 and 600,000 hits has been neatly bookended by Aussies, as Jen’s post on the Caucasus took us through 500,000, and next up is another guest post, this time by Ken M, just after we passed 600,000. March 2014 towered over all previous months like that amazing hotel in Dubai (the graphic on WordPress is a bar graph); there’s still a few days left of March, but we have already beaten our previous best month by 8,386 hits. You know what draws a lot of people? Guest posts, which represent fresh thinking, and comments by interesting people. We are blessed with both.
Anyway, yeah – Ken M. has put a considerable amount of effort into unraveling the money trail in Kiev, past and present, and the lucky man in the barrel today is none other than the current unelected weasel-in-a-drainpipe Prime Minister, Arseniy Yatsenyuk – “Yats”, to those who know him well enough to choose his career path. Without further ado, Follow The Money, Part 1, by Ken M.
Ukraine – Follow the Money
While he tends to be overshadowed by his more colorful cohorts, the key figure in the group that have siezed power in Ukraine is Arseniy Yatsenyuk, first revealed to much of the world in Victoria Nuland’s now infamous ‘F*ck the EU’ tape as her man in Ukraine.
Operations such as what we have just seen in the overthrow of Ukraine’s government do not come from any one source these days – instead they come about when the vast array of western government linked NGO’s, think tanks, financial institutions, billionaire foundations & their various political action committees reach the necessary critical mass and an opportunity opens up for them to take advantage of (or is created).
The origin of the current seizing of power originally came from the attempt to salvage something from the ashes of the ‘Orange Revolution’ by some of its original backers. In 2007 Viktor Yushchenko, former IMF protege and hero of the Orange revolution, along with his government were in complete chaos, his popularity now in the single digits.
The core of the Yuschenko government’s policies were essentially the same as what the current unelected regime is attempting to push through – subordinate economic policy to the control of the IMF, mass privitazation of state assets; the outlawing of Russian language; the promotion of Ukraine’s entry into NATO; removal of the Russian fleet from Crimea & control handed over to NATO, etc.
However, with the complete chaos that came in the wake of the Orange Revolution very little of this program was achieved, despite the vast sums of money expended, intense political lobbying efforts and the enormous western style PR/media campaigns on its behalf (only some the privatization & IMF sponsored ‘reforms’ were successfully implemented).
A new champion for ‘Western Democracy’ had to be created, and so in 2007 the Arseniy Yatsenyuk Foundation was born, and with it the career of Arseniy Yatsenyuk as a major political player.
Despite its brief removal from the internet, a clear picture of just what Arseniy Yatsenyuk is about can still be gleaned from the list of partners found on the Arseniy Yatseninuk Foundation’s website. They are – the Black Sea Trust for Regional Cooperation (A Project of the German Marshall Fund); – Chatham House; – NATO Information and Documentation Centre; – State Department of the United States of America; – NED National Endowment for Democracy; – Horizon Capital; – Swedbank; – & the Victor Pinchuk Foundation.
While the few writers that have written about this have justifiably focused on the blatant brass of NATO, the US State Department & it’s subsidiaries promoting a foreign leader into power of a major country on Russia’s border, much of the deeper story is to be found in the details.
Follow the Money
Swedbank – Sweden’s leading bank, looking like the epitome of respectable banking on their main website, and their trading arm, Swedbank Markets.
“Swedbank’s Financial Markets Department is the leader in attracting risk and debt capital in the Baltics.”
The main types of services provided by Swedbank Markets are:
Consultations on attracting risk capital; Consultations on company mergers, acquisitions and takeovers; Consultations in case of privatization; Consultations on restructuring of companies, restructuring and optimization of capital, investigation and evaluation.
Swedbank Markets are in ‘Strategic cooperation with JP Morgan’. Horizon Capital – an innocently named private equity fund formed in 2006, it is focused on profit potential in Ukraine, Belarus and Moldova.
This starts looking very odd when you take a look at its founder: Jeffrey C. Neal, Founding Partner and Chairman – prior to this, he was the Chairman of the Global Investment Banking Group of Merrill Lynch & Co.
So, what is a former Chairman in one of the world’s most powerful trading firms doing forming a company focused on two economies that can best be described as basket cases along with another essentially closed to western investors?
A look at the co-founder brings things into a little more perspective:
Natalie A. Jaresko, co-founder & Chief Executive Officer – the former Chief of the Economic Section of the U.S. Embassy in Ukraine, a member of President Yushchenko’s Foreign Investors Advisory Council, Jaresko still serves on the board of another company called the Western NIS Enterprise Fund, an equity fund that is in partnership with USAID in Ukraine & Moldova. Among WNISEF’s partners are Whitney MacMillan, multi-billionaire & the former CEO of Cargill, the world’s largest agricultural trading company; along with the former Chairman of Sippican, a subsidiary of defence contractor Lockheed Martin.
Power and its Rewards
When Yatsenyuk came into power, his first move was to make two appointments: the new Governor of the National Bank & the new Minister of Finance. Stepan Kubiv, one of the senior leaders of the Maiden protests got the National Bank job. Kubiv had another job until this – he was the head of Kredbank, essentially a wholly owned subsidiary of Poland’s largest bank, with 130 branches in Ukraine (he might have the distinction of being the only bank CEO in modern times who turned street protest leader and helped overthrow a sitting government – they genuinely lead from behind, not the front…)
Kubiv’s first order of business was to resume “negotiations with external creditors, the International Monetary Fund in the first place, right after the country’s new government is formed and elaboration of a strict new plan for economic and financial reforms. “
As Zero Hedge points out, Kubiv “knows everything there is to know about all assets held within the Ukrainian banking system by the local population.”
The new Minister of Finance Aleksandr Shlapak is probably even more interesting – a political crony of Viktor Yushchenko – a long-time protegé of the IMF…upon Yushchenko’s defeat, Aleksandr Shlapak joined a shadowy Bermuda based offshore financial outfit, IMG International Ltd (IMG), holding the position of Vice President. Based in Hamilton, Bermuda, IMG specializes in “captive insurance management”, reinsurance and “risk transfer.”
What we have here is the inside track – those players best positioned to take advantage of essentially the whole of Ukraine’s remaining assets along with its future earnings to pay off the vast debts – with the details being ‘negotiated’ between Arseniy Yatsenyuk (along with his team of former IMF & finance industry insiders) and the people who created his political career.
The information on Ukraine’s assets from Stepan Kubiv;
Swedbank Markets are positioned as the player to work out the terms of the deals to place most of Ukraine’s assets on the market;
Merril Lynch & JP Morgan are positioned to pick up the better parts of debt trade, with IMG International taking the lead for the vulture trade.
Other well positioned players are : Cargill for the management of Ukraine’s agricultural land & grain sales along with Lockheed Martin for still viable Defence Industries.
These players are looking to take Ukraine into a modern variation of the shock doctrine years of the early 90′s, with the countries rapidly rising debt (or the people of Ukraine’s future earnings) & remaining industries being traded away to vulture capitalists under the most dubious of legal circumstances, and full connivance of the major Western powers.
PART 2 Coming:
Victor Pinchuk, the vainglorious oligarch who midwifed the EuroMaidan.
The Kremlin Stooge 
Here’s another interesting bit of news. Sergey Lavrov has announced that Russia plans to switch to more targeted assistance for foreign states and has given the barest hint, just a slight smidgeon of a suggestion, that Russia may well cut back on or pull out altogether from international ‘donors’ such as the IMF and the International Bank for Reconstruction and Development.
http://voiceofrussia.com/news/2014_04_01/Russia-plans-to-switch-to-more-targeted-assistance-for-foreign-states-Lavrov-4436/
The world has long needed a genuine Development Bank that actually helps develop countries with job and wealth creation (for the citizens of the country) as goals. Just a warning from history – both Saddam Hussein and Colonel Gaddafi had similar ideas – using their oil wealth to help other countries develop outside the western proscribed path and neither, of course, are still around.
“[S]upport for international development frequently becomes a kind of “soft power”, which may be used by a certain country to pursue its interests” really is suggestive, isn’t it?
DW: Germany, France, Poland call for new EU approach to eastern neighbors
The foreign ministers of Germany, France and Poland say eastern neighbors of the EU should not have to choose between Moscow and Brussels. The call is a response to the crisis in Ukraine.
http://www.dw.de/germany-france-poland-call-for-new-eu-approach-to-eastern-neighbors/a-17534667?maca=en-rss-en-all-1573-rdf
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A mea culpa if I’ve ever seen one. Too little, too late. Their gambit failed and they now realize that the costs to be borne will be immense so they are expecting Russia to continue the subsidies regardless. This is only a pause until they see the opportunity to try again.
Watch as German Foreign Minister Frank-Walter (parents couldn’t make up their minds, I guess) Steinmeier reels off how far we are from World War I, the start of World War II, the end of World War II and the end of the Cold War and uses those statistics as a springboard to suggest that we have passed the point where “border corrections which could develop into new conflicts” are acceptable.
http://news.ca.msn.com/canada/video/?videoid=4a40c330-2296-4e57-88a9-f8fb9ee95d2e
Unfortunately for Russia – Ohhhh….too bad – we just passed that point, because in 2008 we were still doing it. But that was OK, because the International Court of Justice (the principal judicial body of the United Nations) ruled that it did not contravene international law.
http://www.britannica.com/EBchecked/topic/322726/Kosovo
Something that should give NATO pause – as a combination of factors appears to have done; I note that this broadcast reports that there is general (if not official) recognition that Crimea is now under Russian control – would be that if it were OK for Ukraine to take Crimea back by force after a unilateral declaration of independence, it would be just as OK for Serbia to re-take Kosovo and it would be just as irresponsible for NATO to interfere in either action.
Also, I seem to remember a time not so long ago when the Weiner Triangle were all about forcing Ukraine to choose between Russia and the EU, and it was the EU – supported by the Weiner Triangle – which made it clear that Ukraine could not choose to be part of both the EU and the EuraU. That kind of seems like a “rigid decision” to me. In that light, I agree it’s hard to view this as anything other than an admission of failure. Unfortunately, that’s all it is, and the statement which evolves out of it seems to be “We failed, but we should get what we wanted anyway”.
“We perhaps underestimated how Russia would react…”
No shit, Sherlock!
A couple of very important pieces of news that have relevance:
This is the big one – “Bank of England agrees Chinese London currency clearing hub”
http://www.bbc.com/news/business-26750990
A big nail in the coffin of dollar hegemony…
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Another one – “Russia’s Gold Ruble Payments System Delinked from Dollar?
…Russia announces that it will sell (and buy) products and commodities – including oil – in rubles rather than in dollars. The move is towards the development of bilateral…
… In fact, the officials are very clear on their intention to punish the western speculators that have been looting their country for a long time:
“Russia, at its present stage of development, should not be dependent on foreign currencies; its internal resources will make its own economy invulnerable to political wheeler dealers.”
This is only the first step, declared Andrei Kostin, the president of VTB, another bank previously sanctioned:
“We have been moving towards wider use of the Russian rouble as the currency of settlement for a long time. The ruble became fully convertible quite a long time ago. Unfortunately, we have seen predominantly negative consequences of this step so far revealed in the outflow of capital from this country. The influx of foreign investments into Russia has been speculative and considerably destabilizing to our stock markets.”
According to Itar-Tass, Kostin was very precise and concrete:
“Russia should sell domestic products – from weapons to gas and oil – abroad for roubles and buy foreign goods also for rubles….Only then are we going to use the advantages of the rouble being a foreign currency in full measure.”
Putin himself lobbied for the new siystem in meetings with members of the Upper House of the Duma, the parliament, on March 28, overcoming the last doubts and indecisions: “
“Why do we not do this? This definitely should be done, we need to protect our interests, and we will do it. These systems work, and work very successfully in such countries as Japan and China. They originally started as exclusively national [systems] confined to their own market and territory and their own population, but have gradually become more and more popular…”
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And yet another milestone – an actual reporter was found actually reporting in the MSM!!!
“Tour of Ukraine-Russia Border Finds No Signs of Military Buildup – By Jim Maceda
http://www.nbcnews.com/storyline/ukraine-crisis/tour-ukraine-russia-border-finds-no-signs-military-buildup-n67336
Apparently a reporter actually did the bloody obvious and drove up & down the Russian-Ukrainian border to see for himself these ‘massive buildups of Russian military forces’.
He couldn’t find any and then he honestly reported the trip!
I’m quite genuinely shocked…
Forgot the links for the 2nd story: http://www.informationclearinghouse.info/article38112.htm
http://www.nasdaq.com/article/putin-calls-for-creation-of-banking-payment-system-20140327-00598#ixzz2xQIi0AgY
Extremely interesting information, Ken. I am reminded again of Adomanis’s laughter at the thought that Russia could ever hurt the might American economy. The consensus, simply explained, is that indeed it could, because since Nixon took the dollar off the gold standard and it became a fiat currency, its real strength resides in its evolution as the “petrodollar”; the currency in which all energy transactions are conducted. Losing the world reserve currency status is important, because although the dollar would still be a very important currency and the USA would still likely have special drawing rights, they would lose the ability to simply print more money to service their own debt.
Some sites, such as Forbes – I have pointed this one out before – insist the petrodollar is a myth, and that you do not need to own dollars to trade in oil. But the same article points out that 30% of the U.S. debt is owned by foreign countries in the currency reserves. Why do other countries hold on to large reserves of dollars if it is not to purchase energy futures? The other most likely expenditure of reserves is to shore up one’s own currency – in the event of sanctions, for example.
http://www.forbes.com/sites/billconerly/2013/10/25/future-of-the-dollar-as-world-reserve-currency/
Several commenters challenged the assertion that only having to own dollars “for a millisecond” is itself irrelevant; that the fact a currency conversion must be done at all constitutes the power base of the dolar, and that direct transactions not requiring conversion would take huge numbers of dollars out of circulation, and I am inclined to agree with their reasoning. Direct transactions specifically excluding the dollar would be a step further again.
Others warn that the time to man the lifeboats will be if OPEC shifts away from the dollar. And a couple of factors point to that being a real possibility; one, the Saudis are pissed at the USA, although that is because they believe it allowed itself to get taken to the woodshed on the issue of Syria, but although that does not in any way argue in Russia’s favour (the Saudi Royals do not care much for Russia), it makes a powerful statement about the USA’s former swaggering about the world doing as it pleased, unchallenged. That sort of influence is what the Saudis think they are getting out of their cuddling with the USA, as witnessed by their offer to pay the USA’s costs if it would only obliterate Syria.
http://www.dailymail.co.uk/news/article-2411806/Offer-table-Arab-countries-pay-scale-U-S-invasion-Syria-says-Secretary-State-John-Kerry.html
If that kind of playground-bully clout is gone, well, friendship is fine but we have to think about interests, right? Which leads me to the second reason OPEC might kick over the apple cart – China has surpassed the USA as the world’s largest consumer of oil. And, like in union battles, the smaller you are, the less bargaining power you have.
http://www.infowars.com/the-real-reason-for-saudi-arabias-shift-away-from-u-s/
Western media pundits constantly yap about Russia’s over-reliance on energy, but you’d be hard-put to substantiate it being more dependent on oil for its wealth than Saudi Arabia is.
http://www.infowars.com/the-real-reason-for-saudi-arabias-shift-away-from-u-s/
There has been talk for decades about a decisive move against the dollar, but my favourite collector’s item comes from back in 2007.
http://www.businessweek.com/stories/2007-11-20/will-opec-dump-the-dollar-businessweek-business-news-stock-market-and-financial-advice
“The obstacles [to dumping the dollar] are overwhelming” claimed energy economist Edward Morse…from Lehman Brothers, who was out of a job himself only a year later when Lehman Brothers augered itself into the ground under a load of bad debt.
http://www.telegraph.co.uk/finance/financialcrisis/6173145/The-collapse-of-Lehman-Brothers.html
Interestingly, Soros threw millions into Lehman stock the day before to try to prevent the collapse.
Once again, Putin has played Obama like a violin!
According to that piece, Putin has been waiting patiently since 2007, just watching and waiting for a pretext to put his plan into action. (To trade oil for rubles instead of dollars.)
And that fool Obama just handed him the pretext on a silver platter.
This will ruin the American dollar.
Once Wall Street realizes what has gone down, they will go ape-shit!
Hmm….I dunno. Abandoning the dollar as payment for oil doesn’t seem to be in the interest of the Russian government (or more specifically the Russian ministry of finance). Here’s why:
Currently Russia obtains US dollars (or in a few cases euros) for its oil and gas exports. Russia can then use these dollars to purchase foreign goods and to provide foreign currency reserves to the central bank and commercial banks (for example any commercial bank with which Gazprom does business). These foreign currency reserves allow private Russian businesses to obtain these dollars to purchase necessary imports in exchange for rubles being given to the banks in return.
But now with the recent depreciation of the Russian ruble, imports have become more expensive (and so any unnecessary imports will probably be discouraged BUT on the flip-side, necessary imports will become more expensive) and Russian exports have become cheaper (provided the private exporters have not raised their price to match the depreciation of the ruble). However, not all Russian exports have become cheaper. Some Russian non-energy exports (i.e. not oil and gas exports or exports derived from those two products) have become cheaper (if they are normally priced in rubles) but Russian gas and oil exports would retain the same US dollar price. Only now Russian gas and oil would be getting more rubles for the US dollars they in turn obtained as a result of the sale of oil and gas. In the case of state-owned companies it means the public coffers of Russia will see increased revenue simply from the depreciation alone.
So IF Russian exporters normally price their goods in rubles and IF those exporters haven’t raised their prices to match the depreciation then Russia would be entering a win-win-win situation IF it was that Russia aimed to limit imports, boost exports and boost the revenue obtained from exports: the depreciation would discourage imports and make the price of Russian non-oil and gas exports more competitive in terms of pricing AND Russia’s government would see increased revenue in rubles from the sale of oil and gas even if the price of oil and gas remains unchanged in US dollar terms.
Sticking with the dollar but making noises about possibly abandoning it might actually be what Russian officials are doing so as to ensure they can get that win-win-win scenario described above AND give certain people in the western world a scare AND test the waters for support for alternatives to the Dollar System…….
Two Bulgaria related stories:
Reuters: Exclusive – Bulgarian nationalists may topple government over Russia sanctions
https://uk.news.yahoo.com/exclusive-bulgarian-nationalists-may-topple-government-over-russia-153431198.html
“…Bulgarian leaders’ position in relation to the Ukraine crisis is especially precarious. On the one hand, the country has pushed for closer ties with the EU bloc, which it joined seven years ago. On the other hand, it is almost entirely dependent on Russian energy supplies, and many Bulgarians feel a deep affinity for their giant neighbour across the Black Sea…
…The Socialist party is a direct descendant of the communists who governed Bulgaria before the fall of the Berlin Wall, when the country was seen as Moscow’s most pliable ally. Many of its core supporters are pro-Russia…”
Being NATO and the EU causes problems itself.
&
Reuters: Bulgaria wary as Russia steps up military flights over Black Sea
https://uk.news.yahoo.com/bulgaria-wary-russia-steps-military-flights-over-black-165951374–sector.html
“SOFIA (Reuters) – Bulgaria has put on high alert or deployed its air force about 30 times in two months in response to a recent spike in Russian military aircraft flying near its aerial borders on the Black Sea, its defence minister said on Tuesday….
…At the moment, one Russian air plane forces the take-off of two Romanian, two Bulgarian and one Turkish planes. This is quite ineffective,” Plevneliev said….”
It looks like Russia is deliberately stretching NATO partners to show that being in the club is not as cheap or safe as they think it is and that Russia, depending on how it is feeling that day, can send planes whenever it wants and NATO countries will have to respond.
I think that the Russian strategy is deliberately to force NATO to spend significantly more money ‘just in case’ and stretching the resources of of their poor eastern members which also imposes much bigger costs on other countries. Russia may be selectively punished by economic sanctions, but it can hit back by costing the West militarily. It only needs to do a few flights or move tanks to and from the border and NATO has to use expensive resources regardless of the intent.
Bulgaria never had a referendum to join NATO because the voters would have rejected it. NATO needed them to close airspace to the Russian military during the Kosovo War.
Published on 30 Mar 2014
Derek Monroe – The Ukrainian far right, backed by local oligarchs, the US and the EU – hijacked the peaceful protest against corruption
More news on Crimean Tatars:
Wow, they are really getting with the program.
The Tatars are becoming valued team players in this new, exciting project called Crimea!
They have a totally positive attitude. !
To be more specific, the mejlis (which used to be pro-Orange Kiev) has made a turn of 180 degrees and announced it wants to cooperate with Russian authorities. It wants to send its quota of 2 delegates into the new Crimean government.
This all came about yesterday (Tuesday — things are moving very quickly nowadays), when the leader of the mejlis, Refat Chubarov, announced that he wanted to cooperate with the new authorities in Crimea. Mejlis is appointing 2 delegates to Crimean parliament, their names are Lenur Islamov and Zaur Smirnov. This is part of the new quota system: Tatars will get a guaranteed quota of delegates in government of Crimean autonomy.
The turning point was when Crimean Tatars got some major sugar from Moscow. There is a deal in the works (broked by Mr. Mini-Khanov) to declare them a “repressed” people and then rehabiliate them and give them some money for reparations, plus a quota in the government.
Hey, whatever works to make peace and can’t we all just get along?
P.S. I love it! This will drive NATO crazy, because they had pinned their hopes on Tatar leaders declaring jihad against Russia. Once again, Russia outsmarted them.
Russia could put the cap on it by pointing out that the flagship of the Ukrainian Navy, the HETMAN SAHAIDACHNY, is named for Petro Konashevych-Sahaidachny, Hetman (civic, political and military leader) of the Zaphorozian Cossacks, whom he led against the Crimean Tatars and the Turks.
The entire Crimean peninsula will be one big Easter-egg basket of soft power. This is how the EU enticed former Soviet satellites away – by offering the seductive promise of a better life, good jobs, security. There is no reason the same mojo will not work for Russia in Ukraine, especially the east. If the hope of escaping EU austerity is not enough for eastern Ukrainians to demand federalization and a closer association with Russia, then Russia could strip it bare of inhabitants.
Which reminds me – 2014 is going to be a good year for Russian demographics! How many new citizens did the Russian Federation just gain? About 2 million?
1) Tetiana Chornovol is a fanatic!
2) Oleh Lyashko is a publicity seeker!
Pity they would not just militarize Right Sektor, give them uniforms and personal weapons and maybe some light infantry fighting vehicles and send them down the road to take Crimea back. Not one would return, and Ukraine would be well shut of them.
According to Ari Rusila’s “BalkanBlog”, Transdniestria’s Supreme Soviet has sent an official request to Moscow, asking to be allowed to join the Russian Federation. Talks within the 5+2 format (Russia, Moldova, Transdniestria, Ukraine, the OSCE and observers from the EU and the US) are scheduled for 10-11 April 2014.
Interfax: 04/01 23:21 Rheinmetall AG will comply with contract on building combat training center in Russia – CEO
Sanctions?
What sanctions?
Interesting. Rheinmetall AG builds our new MASS (Multi-Ammunition Softkill System; “soft kill” is an expression which refers to the destruction of any homing weapon which is seduced away from its target by a decoy rather than being shot down by gunfire or an anti-missile missile, which is a “hard kill”) for the frigate upgrade; they’re reckoned to have a very good reputation for quality technology.
There are a lot of defense companies out there and new startups every year or two, and they’re all scrambling for market share against the giants like Lockheed-Martin and General Dynamics. The notion of sanctions against a customer who pays on time must be ludicrous to them (defense companies being among the less scrupulous of occupations).
So apparently we shouldn’t expect to see the results of any survey polls on federalization in Ukraine from the KIIS anytime soon…:
http://www.dw.de/would-a-federal-ukraine-be-viable/a-17404541
Quote: “How the population would react to a federalization of Ukraine is also unclear. Sociologists have avoided carrying out surveys, in order to “let sleeping dogs lie,” as Volodymyr Paniotto, director of the Kyiv International Institute of Sociology, put it. There are therefore no numbers available.”
So the director of the KIIS admits that surveys on the topic have not been carried out in order to “let sleeping dogs lie”. That’s not sounding like an unbiased or neutral sociological institute since such an institute shouldn’t care if the surveys themselves stir up opinion in favour of federalism. It’s basically an admission that they don’t want to publish any results on the issue and that the KIIS seems to be very satisfied with the status quo.
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Also, it occurred to me that the announced 50% hike in the price that Ukrainians will have to pay for gas at home might only be partly due to the IMF pushing for a gradual removal of the subsidies. A larger factor behind the government doing this might be the devaluation of the Ukrainian hryvnia over the recent weeks. Ukraine’s hryvnia has gone from around 8.24 to the US dollar in November and December to around 11.07 to the US dollar at the time of the announced 50% hike and 11.22 to the US dollar now (well, that’s the National Bank of Ukraine’s average; the National Bank of Ukraine puts the weighted average to purchase US dollars in exchange for hryvnia at 11.53 and the weighted average to obtain hryvni in exchange for dollars at 11.02).
So by the time the announcement was made for the hike in late March the Hryvnia had devalued by 34% (it has now devalued 39.9% since November/December 2013). This would have made Naftogaz suffer even more losses because it has to pay for gas imports in dollars and it receives payments for household gas usage from Ukrainians in hryvni. So whereas in November/December Ukrainians were only paying on average a quarter of what it really cost for the gas (for example’s sake, let us say they were paying US$100 worth or UAH 824), by the time of the announcement they would have still been paying the same price in hryvni (UAH 824) but this would now only be worth US$74.43. Thus instead of paying a quarter of the real cost for fuel, they would (by late March) have only been paying less than a fifth (actually around 18-19%) of the real cost of the fuel.
This 50% hike in household gas prices would mean Ukrainians would once again be paying around a quarter of the price of the gas (so only moving a few inches beyond being back at square one). So instead of paying 25% of the cost they would have been paying perhaps 27-28% of the costs at the exchange rate at the time of the announcement but only 26-27% of the costs at the most recent exchange rates.
This might mean that in the future we may not see Ukraine adhering to the IMF recommendations of removing the subsidies as Ukraine instead may end up playing a game of catch-up to the UAH:USD exchange rate just so that the current rate of pay (a quarter of the price) can be kept up with. Actually pushing through with the planned removal of the subsidies would probably require more drastic price hikes to take into account the depreciation of the local currency and to move substantially beyond that…..
If they do not adhere to the terms of the fiscal reforms that they will sign, the IMF will not hesitate to freeze further payments – they did it to Yushchenko, and the west loved Yushchenko, Orange Revolution and all that. Over exactly the same issue too: he would not take any meaningful action toward reducing/eliminating the gas subsidy. Ha. ha!! where’s your “tools of coercion” now, Jay Carney??? But that’s not coercion; no, of course not. That’s just “expecting your partner to adhere to the terms of the deal they signed.”
Part 2 would be most welcome.