By the Blouin News Business staff

Ukraine’s default scenario

by in Europe.

Ukraine-flow-chart-Feb-2014

Source: Nomura

It’s quite unclear what future lies ahead for Ukraine. On the political front, ousting President Viktor Yanukovych is a big accomplishment for the protesters who have taken over the streets of Kiev and elsewhere since November. However, the greatest challenge remains on the economic front, the backbone of the revolution’s success. Ukraine desperately needs financial assistance to avoid a default on its foreign debt, putting the figure at $35 billion over the next two years on Monday.

Russia’s pledged $15 billion to bail out Ukraine is off the table since the country’s ally, Yanukovych, is out of the scene. Western countries and organizations are now trying to seize the opportunity and step in. The International Monetary Fund is working on a package of assistance for Ukraine; the country also wants economic support from the United States and the European Union. But reports suggest that a comprehensive package wouldn’t arrive before elections in May.

Nomura has published a flow chart outlining several sequences of events that show the complexity around solving Ukraine’s economic crisis, along with an expected timeline which ends in the second half of 2015. The biggest problem is that all roads in their analysis lead to political uncertainty:

The situation in Ukraine is becoming increasingly uncertain due large number of political factors, as well as unpredictable and sometimes irrational behavior from the key players. We have outlined a flow chart with events that we consider as being realistic at this stage. These exclude high tail-risk scenarios such as the intra-civil confrontation as there is little predictability behind possible consequences of such tragic developments.

The diagram begins in the upper left corner and the flow of events works itself through to the bottom right corner. On the right hand side is the approximate timing of events as well as the large external repayments that could potentially trigger restructuring.