Tough times for developping economies. The Ukraine hass seen its currency sink 20%, it stock exchange fall 70% and seen its trade deficit explode because the demand for steel (a major export product) is falling fast. The government spent $2.9 billion buying hryvnas to support the currency in october alone.
Now the IMF has come to the "rescue" by lending $16.5 bln. The conditions are not yet clear but wil include a balanced budget and support for banks.
The question is whether this is any better than past IMF conditions that often nearly destroyed the economy of the receiving nations. I think not.
The Ukraine (and many other rising economies) had an economy driven by foreign investment. This foreign investment financed a hugh trade deficit that allowed a florishing consumer economy. It led to an artificially high currency that was detrimental to autonomous export-led growth.
Now foreign investment and foreign credit has stopped abruptly and the currency is falling fast. Many local companies that had lent in foreign currencies find themselves in trouble and put pressure on the government to support the local currency. The government is complying and spending a lot of money on this. I think it is wasted money.
Nonody knows how long the economic crisis will take. But very probably it will take years before foreign investment in the Ukraine and the other developping countries picks up again. There is no chance that the local governments can keep up supporting their currencies that long at levels that are untenable given the economic fundamentals like the trade balance. So for the local companies it is just a delay of the inevitable. In the mean time the government is wasting money by subsidizing speculators.
In my opinion it would be a much better option to drastically lower the currency at once and spend the money that would be spent on supporting the currency instead on supporting those local companies with foreign debts that get into trouble. It will be a shock for the local consumers, but it is the only way to position the economy for a fast recovery.
Unfortunately the IMF is supporting exactly the opposite policy.