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You're reading: Ukraine: Vilnius or bust?

It
is interesting that the foreign institutional investor community is probably
also increasingly lined up (or at least looking to position that way) with the
view that ultimately President Viktor Yanukovych’s administration will sign on
the dotted line come Vilnius. 

This
does all then beg the question what if we wake up on November 30 without any
signatures on the free trade agreement – which is now only likely to result
from the failure to reach a resolution over the issue of Tymoshenko, i.e. her
flight to Germany for medical treatment. 

My
sense herein is that this will leave Ukraine, its markets and economy brutally
exposed. The macroeconomic story is already fragile, with twin deficits,
dwindling foreign currency and fiscal reserves, already limited and
prohibitively expensive market access, and an economy in recession and with key
industries such as metals struggling against the backdrop of difficult global
market conditions and politically inspired disruption to trade with Russia. The
danger on the back of disappointment at Vilnius is that rating agencies
continue to downgrade Ukraine’s credit ratings, all but closing Ukrainian
issuers out of markets. Institutional investors are then likely to vote with
their feet, risking a follow thru in terms of domestic market sentiment, with a
risk to the hryvnia currency, debt sustainability, the country’s banks and with
a negative feed thru back to the economy. 

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