Ukraine could suffer the fate of Argentina

Last week, the long saga of the debt of Argentina and the second in 12 years defaulted again in the spotlight, when George Soros and other investors have filed a lawsuit against Bank of New York Mellon for the retention of the interest payments.

This happened after Argentina refused to comply with a court order and the United States to pay $ 1.3 billion to creditors, which resulted in a selective default. Agency Moody’s Investors Service downgraded the prospects for the country’s debt to “negative” in late July and has established credit rating to “Caa1”, excluding investments in Argentine debt is extremely risky, located at the end of the spectrum of “junk” bonds.

However, Argentina is the only country whose precarious financial situation makes her unable to make payment on its debt obligations. Rating Moody’s figure of 10 other countries whose debt is risky as well as the Argentine, or even more. Among them, Venezuela, Ecuador, Pakistan and Greece.

The table below lists the countries that are most likely to default on the offensive sovereign debt, according to the agency Moody’s. Countries with a rating of Caa1, considered the same “risky” as Argentina, while the ratings of Caa2 and Caa3 – even more controversial:

Other countries in the top of the spectrum of “junk” bonds, are still cause for concern. For example, Ghana, whose credit rating was downgraded in June, and that plans to seek help from the IMF next month.

The economic recession in Ukraine has worsened over the past few months, with a sharp decline in industrial production due to the conflict. Capital Economics, a company conducting macro-economic research, predicted that in July, Ukraine’s economy will shrink by 5% compared to last year, which was preceded by a decrease of 4.7% in the second quarter.

“We are only now able to see the impact of the conflict in numbers in the eastern regions of the country’s economy – said Peter Attard – Montalto, an expert on emerging markets bank Nomura.

“Write-offs and restructuring are quite possible in Ukraine, as the currency continues to creep down, economic growth continues to surprise its slowdown, and the external debt is still growing.”

Moody’s downgraded the rating of Ukrainian bonds to Caa3 with a negative outlook in April last year, two points lower than in Argentina. The agency noted the worsening geopolitical crisis in the country, suppressed external liquidity, lack of financial support of Russia and the rise in prices for imported gas. The ratio of debt to GDP is expected to reach 55-60% by the end of the year, while at the end of 2013 this figure was 40.5%.

However, economists believe that a formal default in the country is unlikely, given the size of the international aid that it receives. The EU has promised to provide 11 billion euros ($ 14.5 billion) and the IMF – an additional $ 17 billion.

“The level of international support received by Ukraine, is so high that any restructuring of the debt, if it ever will need to be delayed for a maximum later date,” – says Attard – Montalto.