YES John Hardy Ukraine can certainly avoid default if given sufficient, rapid aid from the IMF and other sources. It must come quickly - the country is near complete financial collapse, with the central bank the only source of liquidity and Ukrainian banks effectively insolvent without emergency liquidity provision. To avoid a default, perhaps $15bn (£9bn) to $20bn would keep the country afloat for the remainder of the year. But it would also require a clear intent to back it up with larger amounts further down the road if various conditions are met - a move that would stem the risk of further capital flight. While emergency loans could stabilise the short-term outlook, the IMF would likely demand considerable policy changes in the future, including a further devaluation in the currency, structural reforms, a change of energy policy, and fiscal austerity. These could prove politically tough to swallow for whatever leadership is chosen in the upcoming election in May. John Hardy is head of FX strategy at Saxo Bank.
NO Timothy Ash There seems to be an assumption that Ukraine is somehow too geopolitically important to fail. But this is simplistic - we have seen so many cases where a country should not have defaulted but did so, and Ukraine could become a prime case of this. The macroeconomic framework is horrible - a current account deficit (9 per cent of GDP in 2013) alongside a shrinking economy. The ratio of public sector debt may not be that bad yet (43 per cent of GDP), but this could deteriorate very quickly as the currency sinks, and bank and budget bailout costs mount. The IMF and the West need to act fast. But without a strong and stable government in Kiev, any IMF programme is unlikely to succeed. What worries me most are the strains in the domestic political scene, and the existence of a destructive outside force (Russia) which seems determined to blow the country off course.
Timothy Ash is head of emerging market research (ex-Africa) at Standard Bank.