Investors complain, but central banks shrug

28 March, 02:21 PM
IMF (Photo:REUTERS / Yuri Gripas)

IMF (Photo:REUTERS / Yuri Gripas)

The signing of an SLA with the IMF under a new program was a key event in Ukraine. It still has to be approved by the Fund's board, but this, as always, is more of a formality

The week in the financial markets did not start on Monday at all, as it was a busy weekend for the Swiss banking regulator and the bankers who worked at the country's two largest financial institutions. The former two largest, that is, because on Monday morning, there was only one left. Credit Suisse did not survive this spring, leaving the arena due to American IT people and its bad reputation. It became a victim of the decline in confidence in banks, which began because of the folks in Silicon Valley. At the end of last week, it seemed that the worst for the bank was over, and the fall in bonds had managed to be stopped. But no one could stop the depositors who had begun to take their money out of the bank. This left no choice for the Swiss Central Bank, which in turn left no choice for the other industry giant, UBS, hinting that if it did not buy its competitor, then it would be worse for everyone. And the central bank helped them find the money to buy Credit Suisse.

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In the end, almost everyone was satisfied, save for the holders of one specific type of Credit Suisse bonds.

As it turns out, sometimes in Switzerland they’re able to work quickly and precisely like a Swiss watch

These were sent to pasture, referring to a clause in the conditions for issuing these bonds, which allowed this to be done by the decision of the regulator. And the Swiss Central Bank did not wait for long, especially since the Swiss authorities quickly put together another legal basis for this case. As it turns out, sometimes in Switzerland they’re able to work quickly and precisely like a Swiss watch, once again hinting that it is necessary to read the terms of a bond issue, even though this is unlikely to change anything and is unlikely to force a wide range of investors to do this. While they complain, angrily calling Switzerland a "banana republic," the Central Bank has thrown up its hands. Among those hit hardest was, for example, one of the world's largest investors, PIMCO.

This event did not drastically affect global markets, as everything was fortunately taken care of before Monday morning, and the failure of PIMCO left many contentedly gloating. And as a result, only Asian exchanges collapsed, which opened too early and thus prompted the formulation of a local Ukrainian conspiracy theory that Chinese speculators traders woke up on Monday morning and suddenly found out that Comrade Xi had flown to Moscow and therefore were very upset. The U.S. market fell slightly over the week. The S&P 500 lost 12 points for the week and will open on Friday morning at 3948 points. Here the mood was influenced by the Fed. Many traders and speculators hoped that after the mini-bank crash in the U.S., which had sunk a Swiss bank, the American regulator would come to its senses and would not go for a further increase in rates, in light of what this had already led to and what else it could lead to. But the regulator did not cave into pressure and once again raised the rate, this time by 25 basis points – upsetting the markets, of course. I am glad at the same time that oil continues to trade below the usual level. Basically, during this period, a barrel of Brent was worth about $75, having risen slightly towards the end of the week.

Events in Switzerland and abroad had little effect on the Ukrainian market. In the end, any global turbulence can have an impact on the Ukrainian economy at this point really only through the IT market. However, the happy time for Ukrainian IT specialists, where 10 employers were fighting over each employee, has ended, in part due to the increase in rates from the Fed. The key event in Ukraine was the signing of the SLA with the IMF under the new program. It still has to be approved by the Fund's board, but this, as always, is more of a formality. Thus, the IMF has joined the list of countries and organizations supporting Ukraine, prescribing a long program, which will, apparently, duplicate the plan for European integration. And it won't let Ukraine do stupid things.

In particular, the Fund prescribed that the country's budget should not be deprived of taxes in the near future by canceling them or lowering rates. In total, Ukraine will receive something around $15-16 billion. At the same time, the Fund had to change its rules in order to be able to lend to Ukraine during wartime by requiring that this can be done if other creditors take the responsibility not to give up support and share this heavy burden. Having thus conveyed, at the same time, a hello to the Chinese, who have brought half of Africa to their wits end with their loans and are now washing their hands of the situation, not wanting to contribute to the exit of these countries from the debt hole. After all, why did the Chinese do all this in the first place?

The signing of the IMF program hurt foreigners who had bought Ukrainian domestic debt. They waited with bated breath for April 1, when it was believed that they would be allowed to withdraw money from Ukraine. At least, that's what they were promised a year ago, when the war was just beginning. It seems even foreign investors had their own Arestovich, and their own April Fool's Day. It is clear that the IMF and other creditors who manage taxpayers' money would not be very happy if what they gave to Ukraine immediately left the country to the accounts of financial investors, who are often very disliked by the average taxpayer. Therefore, now the Ukrainian central bank, immediately after reaching an agreement with the IMF, also told everyone to bugger off, saying that nothing could be withdrawn in the near future, and that investors could only repatriate coupons that they receive starting April 1. At the same time, this is helping the Ministry of Finance to fulfill its plan for borrowing, because now foreigners are likely to actively buy new bonds (or old ones) with a large discount for the money that they have stuck in Ukraine. Which is very important, given the growth of the budget deficit by UAH 500 billion and the risk that it may be forced to be partially financed by the money press. That could have a very negative impact on the hryvnia, which has been the most stable currency in the world for half a year now.

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P. S. What seems to us as bitter trials are often blessings in disguise

Oscar Wilde

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