As hostility and confrontations between Russia and Ukraine continue to develop, the latter is put at greater risk of experiencing severe economic problems. Russia has promised to stop providing discounts for natural gas exports on April 1 and a 15 billion dollar loan to Ukraine has been indefinitely suspended. The European Union has pledged up to a 15 billion dollar (11 million euro) loan to the newly-formed government and John Kerry recently announced approval for the United States to loan up to 1 billion dollars in loan guarantees to Ukraine. However, Ukranian officials say that at least 35 billion dollars in loans and credits will be needed to ensure that the country does not default in the next two years.
As an emerging free market, Ukraine has struggled to create a corruption-free open market. The country's trade deficit is currently rooted in its dependence on natural gas imports from Russia, and the country's struggle to recover from the worldwide financial crisis in 2008 have resulted in low growth rates, inflation, and devaluation of the currency.
As a transition economy that is now undergoing new transitions, Ukraine is at risk of defaulting on previous and future loans from international creditors. Knowing this risk and the tenuous situation that Ukraine's economy is in at the moment, could Russia use their political and economic advantages against Ukraine by forcing further dependence on Russia's natural gas exports and economic credits? Or will international monetary organizations and other countries wield their own advantages and cover the deficits that Ukraine will face in the event that all economic and political ties are cut from Russia?
Article: http://www.nytimes.com/2014/03/06/world/europe/ukraine.html?hpw&rref=business&_r=0
Additional source: http://www.economist.com/blogs/freeexchange/2014/03/ukraine-and-russia
As an emerging free market, Ukraine has struggled to create a corruption-free open market. The country's trade deficit is currently rooted in its dependence on natural gas imports from Russia, and the country's struggle to recover from the worldwide financial crisis in 2008 have resulted in low growth rates, inflation, and devaluation of the currency.
As a transition economy that is now undergoing new transitions, Ukraine is at risk of defaulting on previous and future loans from international creditors. Knowing this risk and the tenuous situation that Ukraine's economy is in at the moment, could Russia use their political and economic advantages against Ukraine by forcing further dependence on Russia's natural gas exports and economic credits? Or will international monetary organizations and other countries wield their own advantages and cover the deficits that Ukraine will face in the event that all economic and political ties are cut from Russia?
Article: http://www.nytimes.com/2014/03/06/world/europe/ukraine.html?hpw&rref=business&_r=0
Additional source: http://www.economist.com/blogs/freeexchange/2014/03/ukraine-and-russia
4 comments:
Very interesting dilemma. I wonder how the world we resolve this problem since Ukraine keeps asking US and other countries to help them. The situation is probably the same in Asia, where China, likes Russia, has the upper hand to other smaller Asia countries. Thus they keep using the same threats (economics and politics) to control other small countries.
The biggest loss for the Ukraine in this situation would be if it lost all of its majority Russian areas. Those areas comprise of the Ukraine's total coastlines. It would lose access to the Black Sea. This would be very detrimental to the Ukrainian economy and very likely lead to a default sooner.
Very good analysis of the article. It is important to notice that while Ukraine is reliant on Russia's gas, Russia is equivalently reliant on Ukraine's pipelines in order to get their gas to other countries in Europe like Germany. In addition the deal between Russia and Ukraine has undermined Ukraine's flexibility in controlling the limit of gas supply. Thus while Russia "cut" Ukraine a deal, Ukraine had to buy a set amount if gas which was way above the amount Ukraine consumes on annual bases.
Very good analysis of the article. It is important to notice that while Ukraine is reliant on Russia's gas, Russia is equivalently reliant on Ukraine's pipelines in order to get their gas to other countries in Europe like Germany. In addition the deal between Russia and Ukraine has undermined Ukraine's flexibility in controlling the limit of gas supply. Thus while Russia "cut" Ukraine a deal, Ukraine had to buy a set amount if gas which was way above the amount Ukraine consumes on annual bases.
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