IMF-Conditioned Bank Bail-in in Ukraine
May Be Imminent
March 2014
March 14th, 2014 — The IMF may be preparing to force a "bail-in" of bondholders by Ukraine banks — one which could escalate to depositors — and strong country- and bank-bond sell-offs and depositors' runs are already reported underway at Ukraine local banks and branches of Russian banks in Ukraine.
According to International Business Finance: "Last Tuesday, an IMF mission started a 10-day visit to the country to thrash out the details of a possible plan. The following day Ukraine's acting finance minister, Oleksander Shlapak, said a debt restructuring was a possibility, sparking a sell-off in the country's bonds."
This has to do with Ukrainian government bonds; the IMF's new policy is to insist on bail-in "haircuts" of bondholders if it gives "assistance" in return for austerity. Britain and Germany may be demanding that, for political reasons, it not do so here AND NOW (i.e., that IMF allow a full bailout of government debt held by banks).
BUT "the country may be persuaded to attempt such a bail-in since the most recently issued Eurobond offering, a US$3bn instrument entirely bought by Russia last December, gives holders the right to accelerate should Ukraine's debt-to-GDP breach 60%, as would happen under a softer bailout." In other words, a full IMF bailout of Ukraine government debt would allow Russia to collect on that debt; a "bail-in" would not.
This bail-in prospect, since local and Russian banks hold Ukraine debt, is causing those banks' bonds to skyrocket in interest-rate yield, and threatening that insolvencies will break out. The banks will bail-in bondholders but perhaps depositors as well, and there are plenty of photographs of long lines — runs — outside these banks now.
From "After Ukraine's EU Refusal: Eurasian Development vs. Collapse and Chaos", EIR, Dec. 6, 2013 (PDF) HTML FIGURE 1 Source (in Russian): http://www.idmrr.ru/downloads/doklad_siberia_ver.5.97.pdf.
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