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Ukraine: On the brink of disaster

IMF loan may not be enough to stave off banking and currency collapse.

Some hat tricks are best avoided. Given the turmoil on global financial markets, the prospect of a third general election in Ukraine in as many years is one such instance.

Investors have grown tired of much-needed economic and fiscal reforms being stymied by the infighting between president Viktor Yushchenko and prime minister Yulia Tymoshenko. In the space of little more than a week in October, early elections were called for December 7, postponed to December 14, then to January and then apparently cancelled, before Yushchenko said the elections could take place on December 7 after all. Tymoshenko, who is bitterly opposed to the elections, is as a result refusing to pass laws designed to deal with the financial crisis. "The political landscape looks likely to remain shaky until at least spring 2009," says Denis Shauruk, an analyst at Alfa Capital in Kiev.

The political uncertainty has fed through into economic volatility, with Ukrainian assets taking a hammering across the board. By late October, despite repeated, expensive interventions by the National Bank of Ukraine, the hryvna was trading at a record low of Hm6 to the dollar – down 33% since June. On the debt front, credit default swap spreads on Ukrainian sovereign Eurobonds soared to a record level of 2,800 basis points.

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