When a US business can’t pay its debts, it can escape into chapter 11 bankruptcy. By doing so, it can reorganize its debts and negotiate acceptable resolutions with its creditors. This in turn allows the struggling company to regain energy and get itself back up and running.
Unfortunately, as financier George Soros Ukraine argues in a recent article for the Wall Street Journal, a strategy for debt relief similar to chapter 11 bankruptcy is not available for nations facing a financial crisis. Soros’ case in point is the Ukraine. Since the Maidan Revolution of February 2014, when Ukrainians showed themselves committed to political and judicial reforms and to the elimination of corruption, the country has been buffeted with one financial crisis after another. Vladimir Putin’s military aggression in the Crimea and the Donbass region forced the Ukrainians to seek aid from Europe, putting it deeply in debt. And while the Minsk II settlement seems to have calmed the situation for the present, Russia continues to undermine Ukrainian stability.
The International Monetary Fund has demanded that the Ukraine negotiate a deal with its creditors before it can receive further financial support. But because bankruptcy and reorganization are not an option, the country can only threaten to default on its debts. Would this be as bad an outcome as is sounds? Soros says no. If default is the Ukraine’s only option, and if through default it can continue fighting for structural reform, improvements to its banking system, support for agriculture, and entry into the European Union, then investors should welcome this step.
George Soros – The New York Times
Elsewhere George Soros has argued for increased financial support for the Ukraine by the European Union. In an article in the New York Review of Books, he urged the European Union to revise its treatment of the Ukraine. According to Soros, the EU has hesitated to invest in the Ukraine because it views that country’s financial situation as similar to that of Greece, a member country that the EU has long struggled to support. There are similarities, Soros admits, between Greece and the old, pre-Maidan Ukraine: political oligarchs manipulated the system for their own self-enrichment. That EU countries hesitate to loan Greece money is understandable.
But the new Ukraine is not Greece, Soros insists. It has rejected its oligarchs and set out on a path that not only will lead it eventually into a much better place politically, socially, and financially; as a strong ally of the European Union, the new Ukraine could be a valuable bulwark against Russian aggression. By large and purposive financial investment in the Ukraine, Europe could hasten political and financial reforms, making the Ukraine a country that global investors would find attractive.
The European Union, Soros reminds his readers, is not in a good place right now. The rise of nationalist parties in member states, the euro’s fragility, the threat of a British withdrawal, and the ongoing refugee crisis seem at the moment much more threatening than Ukrainian debt. But a loss of confidence in the Ukraine would only exacerbate Europe’s problems. A strong and economically successful Ukraine is Europe’s best investment.