[10]
George Orwell once wrote in ‘Animal Farm’ ‘all animals are equal, but some animals are more equal than others’. This famous sentence is now valid more than ever before as surprisingly, the IMF will continue to cut Greece out of potential funding, whilst it’s embracing Ukraine by offering that country billions of dollars in hard cash as support.
In a surprising statement, the IMF confirmed it has currently no intention [11] to continue to back Greece by making more cash available for the country. Citing the high debt levels and the poor level of implementing the much needed changes and reforms, the IMF says Greece currently does not meet the criteria required by the IMF to step in and provide more financial assistance. As you might remember, the IMF has pulled the plug on providing Greece more cash to help the country out until it will be able to re-finance its existing debt on the private markets.
As the IMF has now conveniently ‘leaked’ a ‘strictly confidential’ document stating it doesn’t even want to consider to extend a new debt package to Greece, two conclusions can be drawn. First of all, it’s now unlikely the IMF will be part of the next financing round for the country, and this results in the second conclusion; the European Union will now be on its own. All future help will have to come from either the member states or the European Central Bank (which would need to see its mission statement updated before being able to do so).
[10]
Source: tradingeconomics.com
But then the IMF made another eyebrow-raising decision. Whilst it was slapping Greece on the wrist, it was praising the Ukrainian government for its reforms despite the fact the GDP dropped by 28% in just one year time, pushing the debt to GDP ratio to an all-time high of almost 72%.
Okay, that’s still lower than Greece, but you can’t possibly believe that Ukraine is doing so much better than Greece! Even the credit scores are indicating the opposite; whereas Greece has a CCC+ credit score from S&P, Ukraine’s score is just CC, three steps lower than Greece indicating a default is imminent.
The sentiment and used language by Lagarde, the head of the IMF, is also completely different from the language used to describe Greece. According to the IMF, Ukraine’s situation is ‘incredibly encouraging’ [12] which is quite a surprise considering the oil and gas prices are trading at multi-year lows and the iron ore price is also trading at just $50/dmt.
As in excess of 50% of Ukraine’s economy [13] consists of both mining-related activities and the production and transportation of oil and gas, it’s very difficult to share Lagarde’s optimism about the country’s potential to rectify the current situation.
Or to update George Orwell’s phrase. All countries are equal, but some countries seem to be more equal than others.
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