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April 15, 2014

Ukraine Receives Additional Aid As Tensions Rise

by Mil Arcega

Tensions are rising in Ukraine even as assurances of international aid to stabilize the country’s battered economy have started pouring in. Despite the promise of financial help, the ongoing conflict between Ukraine and Russia has only deepened the economic slump in both countries. Investors say the economic uncertainty extends beyond Russia and Ukraine’s borders.
 
Near Ukraine's eastern border, pro-Russian separatists barricade a bridge, while just 60 kilometers south, Russian supporters storm another government building.
 
Overhead, choppers carrying Ukrainian special forces keep watch, wary that any action could tip the conflict into a dangerous new phase.
 
The threat of civil war in Ukraine is enough to give investors heartburn.  
 
“Believing is not the same as knowing, but I am afraid the situation is going to get worse and that we will have to put up with very cautious markets for the next couple of weeks at least,” said Fidel Helmer, a market strategist for Hauck and Aufhaeuser bank.
 
Tensions in Ukraine have overshadowed generally positive earnings reports  - creating volatility in global markets from Asia to the United States.
 
But amid the geo-political uncertainty, strategist Stephen Wood at Russell Investments said, financial markets have shown remarkable restraint.
 
“Given all the information that’s been priced in: the earnings cycle, the revenue cycle, what’s happening in Ukraine, emerging markets, potential issues coming out of Washington, so given all that volatility… markets are kind of flat-ish year to date, which speaks to me of being a little more resilient than the headlines might insinuate," said Wood.
 
With Ukraine's economy near collapse, the United States on Monday announced a one billion dollar loan guarantee for Ukraine, adding to an International Monetary Fund rescue package worth up to 27 billion dollars, said Treasury Secretary Jack Lew. 
 
“With this loan guarantee agreement, the Ukrainian government is empowered to take steps to gain access to low cost financing from international capital markets and help to ease Ukraine’s economic transition,” said Lew.
 
Meanwhile, Europe is still in talks aimed at further isolating Russia.
 
With the ruble already at its lowest level in nearly five years, economist Lilit Gevorgyan at IHS Global Insight said Moscow should take heed.
“I have to say that perhaps in the short term, they can take more hits. But in the medium to long term, Russia is going to suffer from this confrontation,” said Gevorgyan.
 
But in this confrontation, analysts say any actions that significantly hurt Russia’s economy are bound to hurt its trading partners, including Europe. Russia currently supplies 30 percent of Europe's natural gas, much of it piped in through Ukraine.