Robert Kahn

Macro and Markets

Robert Kahn analyzes economic policies for an integrated world.

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Showing posts for "Ukraine"

Ukraine’s Decisive Moment

by Robert Kahn

Budget debates are often dry affairs, but not so in Kiev. By the end of this month, the Ukrainian parliament (Verkhovna Rada) must decide on a budget that will have profound effects on the future course of the government. The Ministry of Finance has proposed a budget that sets most tax rates at 20 percent, while closing loopholes and holding the deficit to an estimated 3.7 percent of GDP.  The International Monetary Fund (IMF) has endorsed the plan, and the passage of the bill, or something close to it, is essential to completing the IMF review and keeping the government’s adjustment program on track.

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Ukraine Needs a Moratorium

by Robert Kahn

After months of standoff, the Ukraine government appears to be making halting progress towards an agreement restructuring its external private debt. On hopes of a deal, and ahead of an IMF Board meeting next week to review its program, the government reportedly has decided that it will make a $120 million payment to creditors due tomorrow. It is possible that decision to repay will be seen as a signal of good faith and create momentum towards an agreement, but I fear it’s more likely we have reached a point where continuing to pay has become counterproductive to a deal. Absent more material signs of progress in coming weeks, there is a strong case—on economic, political and strategic grounds—that a decision to halt payments and declare a moratorium gives Ukraine the best chance of achieving an agreement that creates the conditions for sustainable debt and a growing economy in the medium term.

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A Roadmap for Ukraine

by Jennifer M. Harris and Robert Kahn

U.S. and European efforts to resolve the Ukraine crisis seem to be finding their stride in recent days. U.S. Secretary of Defense Ash Carter ended months of “will they won’t they?” by announcing earlier this week that the U.S. would be sending heavy weaponry into Eastern Europe, and late last week EU leaders declared that EU sanctions against Russia would remain in place through the end of 2016, quelling months of anxiety around whether EU resolve on sanctions would hold.

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Ukraine’s IMF Program Sets Stage for Debt Restructuring

by Robert Kahn

The IMF yesterday approved a four-year, $17.5 billion arrangement for Ukraine, their contribution to a $40 billion financing gap that they have identified over that period. A further $15 billion is to come from a restructuring of private debt, with formal negotiations expected to begin soon. The rest is expected to come from governments and other multilateral agencies. An ambitious array of reforms—including to fiscal and energy policy, bank reform, and strengthening the rule of law—are laid out, signaling a dramatic break from past governments. These measures are expected to set the stage for recovery: output falls 5 ½ percent this year before 2 percent growth returns in 2016, inflation will average 27 percent this year and then decline, while the current account deficit falls to 1 ½ percent and the currency stabilizes around current levels. Public sector debt will peak at 94 percent of GDP in 2015 as the program takes hold. All this depends on an end to the current hostilities, which as the IMF notes remains a considerable risk to the program.

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The Meaning of Ukraine’s IMF Deal

by Robert Kahn

While today’s headlines focus on the truce agreement between Ukraine and Russia, a significant economic milestone was achieved yesterday with the IMF’s announcement that its staff has reached agreement with the government on a new four-year program. The Fund’s Board will likely consider the program next month. Whether or not the truce holds, the program is the core of western financial support for Ukraine. Is it enough?

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When meetings matter—The World Bank and IMF Convene

by Robert Kahn

There are many reasons cited for this week’s market turndown and risk pullback, including concerns about global growth, Ebola, turmoil in the Middle East, and excessive investor comfort from easy money. What has been less commented on is the role played by last weekend’s IMF and World Bank Annual Meetings. Sometimes these meetings pass uneventfully, but sometimes bringing so many people together—policymakers and market people—creates a conversation that moves the consensus and as a result moves markets. It seems this year’s was one of those occasions. As the meetings progressed, optimism about a G-20 growth agenda and infrastructure boom receded and concerns about growth outside of the United States began to dominate the discussion. The perception that policymakers—particularly European policymakers—were either unable or unwilling to act contributed to the gloom. Time will tell whether macro risk factors that markets have shrugged off over the past few years will now be a source of volatility going forward. But if that is the case, perhaps these meetings had something to do with it.

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New Energy for Russian Sanctions

by Robert Kahn

Time will tell whether new sanctions on Russia announced by the United States and European Union last week will be a game changer. The most significant development concerns oil, as the new measures go much further than previously understood to shut down ongoing exploration and production of new Russian supply. While triggered by events on the ground in Ukraine, from a policy perspective this is a catch-up action, closing loopholes and bringing market practice more in line with the harsher intent of earlier measures. As such, I view the steps as an incremental, if logical, next step in the effort to punish Russia for its actions in Ukraine. Still, compared to what some energy companies thought they would be allowed to do, the new measures look to be material in terms of their effect on ongoing exploration, development and investment in securing new oil.

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Financing Ukraine: Time for an Honest Assessment

by Robert Kahn

Russia’s invasion of Ukraine (“incursion” is far too polite a term) represents a major intensification of the conflict and should cross all red lines the West has established.  The logic of the earlier, incremental approach—put modest sanctions in place, and let the threat of worse create a chilling effect on investment and trade—has reached a dead end.  Whether President Putin seeks a stalemate within Ukraine or something more menacing, full sectoral sanctions (including, importantly, Russia’s access to payments systems) should now be put in place as a firm signal of western resolve.  The real cost-benefit to be done is not the costs on the West compared to Russia. Rather it is those relative costs contrasted against doing nothing and risking a situation that brings us closer to either armed conflict or acceptance of a new rule that states can redraw boundaries by force. German President Merkel has signaled that further sanctions are on the agenda for the September 30 EU leaders summit, and I expect the Obama Administration will move with them if not before.

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EU Sanctions Rules Released

by Robert Kahn

The rules for implementing new EU sanctions against Russia have been released (see also here and here).  On quick glance, they are, as advertised, an important step that will have systemic effects in financial, energy and defense markets. In this respect, they are “sectoral” or “level three” sanctions in the language of policymakers.  While narrow in scope– the financial ban (Article V) is on new transferable securities of majority state-owned Russian banks with maturities greater than 90 days–one is left with the impression that Europe, like the United States, stands ready to extend the sanctions if there is evasion or further Russian efforts to destabilize Ukraine.

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