Interesting how press reports are now saying that (Kremlin-backed) rebels also rejected the terms, so I guess both sides are blaming the other at this stage for failing to sign on the dotted line.
I think President Petro Poroshenko could not agree to a deal which he could not sell back in Kyiv. He had clear red lines. And he knew that compromising on issues like Federalism, Russian peacekeepers, conceding additional territory to rebels would risk Maydan II/III (another revolution) back home.
Interesting, last week in Kyiv, talking to 40-50 locals, the mood was not that we need a deal at any price. The mood was that some things – like our independence, right to self determination, territorial independence – are worth holding out for. I think Poroshenko will receive a lot of backing at home for this, with disappointment over no ceasefire deal, but understanding that.
Poroshenko did the right thing for Ukraine. Even if that means a continuation of the conflict. The majority view in Kyiv is that they don’t want to be subject to domination by Moscow, and want to determine their own path and to the West.
Moscow will use this as a PR victory, likely arguing that they were willing to compromise, but Poroshenko was not.
I doubt that the West will spin it this way, and particularly not the US. Interestingly the mood this week in Washington, D.C., overwhelmingly was that any Minsk II deal put together this week was unlikely to solve the substantive issues, was likely more of a tactical bluff by Russia to head off further sanctions, out-maneuver Ukraine, and play to weaker European allies. So hopes of a deal which brought an end to fighting were very low. I also often hear the line that Minsk II would likely favor Europeans more than Ukraine, i.e., some in Europe wanted a deal at Minsk at any price, and were willing to try to browbeat Porooshenko to sign on the dotted line.
All that said, I hear that talks are continuing, and its not over until you hear the lady singing. So let’s still see if Merkel and Hollande can pull this out of the bag at the 11th hour (longer actually). And it could still be a negotiating ploy by both sides, I guess. But things are not looking that hopeful at this stage.
The International Monetary Fund would have preferred a cease-fire agreed at Minsk, but is determined to roll out a new Extended Facility Fund in support for Ukraine, as a reflection of Western backing for Ukraine. The hope will be to send a signal to Putin and to Ukrainians (thinking of buying foreign exchange, and sending foreign exchange offshore) that the West stands behind Ukraine and will not let it fail financially (the reality is that the West has been so slow with its support that it is already failing in this respect – e.g. already collapsed currency/banks/ deep recession).
A $17.5 billion program is more or less as I expected – talk of $17-18 billion before.
I guess the disappointment is that this is just the same size as the previous stand-by loan, so is hardly generous, and despite the fact that the financing gap is now much larger.
The IMF will hope to spin this by arguing that it plans to front load disbursements (talk of $8 billion plus released in the first year) and conditional on front loading of reform commitments as key structural benchmarks, e.g., energy sector reform, budget consolidation, and anti-corruption efforts. The hope also is that the programme will be augmented by $5-6 billion in other official financing, including the United Staets, European Union and World Bank monies.
Restructuring debts is part of a solution to close a $40 billion+ financing gap over the duration of the program. Let’s see how talks with creditors go over the next few months. Negotiations are expected to be tough, given likely Russian holdouts (over repayment of a $3 billion sovereign bond).
There was talk of a need for $15 billion in new money, but from what I can see we are at less than $12.2 billion.
EU council leaders are expected to discuss further sanctions on Russia later today. They will await a briefing from Hollande and Merkel presumably as to why Minsk talks failed. Russian allies in Europe will likely argue still for a stalling of further sanctions, to let the dust settle after Minsk. The problem is that the dust is unlikely to settle now, only be kicked up further as a result of the seeming failure of Minsk. Merkel and Hollande sold their efforts over the past week as a last gasp effort to give peace a chance. If that was the case, one has to assume that further and significant conflict now lies ahead, with at least one of the sides still likely to want to pursue a military solution on the ground, to force political concessions from the other.
Timothy Ash is head of emerging markets for Standard Bank in London.
