Ukraine Market Report — Q3 2015
A debt restructuring agreement with private creditors in August removed the immediate repayment pressure, and an electronic procurement system began piloting that would become one of the period's clearest reform successes.
Overview
An agreement was reached in August with private external creditors, restructuring a substantial portion of sovereign debt through a combination of principal reduction and maturity extension.
An electronic public procurement system entered pilot use during the year, ahead of becoming mandatory.
The restructuring
Its commercial significance was the removal of a repayment schedule that the country could not have met, which stabilised the external position and made the IMF programme's financing arithmetic work.
For companies, the relevant effect was on sovereign risk pricing, which feeds directly into the cost of any Ukrainian corporate borrowing and into the terms of trade credit and insurance.
The procurement system
The system moved public tendering onto an open electronic platform where bids, participants and awards are visible to anyone.
It is worth explaining why this one worked when so many other reforms of the period did not.
Its design does not depend on the goodwill or the behaviour of the institutions it regulates. Compliance is structural: to award a contract you must run the process, and the process publishes itself. There is no discretionary step at which the transparency can be quietly switched off, and no inspector whose cooperation is required.
Every reform in this archive that succeeded shares that property. Every one that failed required the people being reformed to implement their own reform.
Macro position
The contraction continuing but beginning to bottom. Inflation very high but past its peak. Currency stable. Reserves rebuilding with programme disbursements.
Sectors
Agriculture — the export mainstay.
Metals — operating at reduced capacity.
Banking — clean-up continuing.
IT services — growing strongly.
Energy efficiency products — a market developing rapidly on the back of the tariff reform.
What the quarter settled
That reform design determines reform outcome more than political will does.
The procurement system and the banking clean-up both succeeded because they did not require cooperation from the parties they constrained. Judicial reform, attempted repeatedly in the same period, did — and did not succeed.
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