The IMF is sending a mission to Ukraine in the coming days to discuss recent negative developments in the country.  We would expect that an IMF program will be discussed in detail, and Deputy Prime Minister Turchynov said Ukraine has asked for “systemic support” and “active cooperation” from the IMF.  We continue to believe EMEA countries are most vulnerable in current conditions, and we note that Ukraine has a current account deficit equal to almost 8% of GDP and a short term debt/reserves ratio of 150%.  Ukraine has had several IMF programs since the Soviet Union broke up, the most recent one a Stand-by arrangement that expired March 2005.  No money was drawn down in the program. 

We are in the midst of a study regarding IMF programs and relative currency performance.  What we have found so far is that countries that go into IMF programs typically continue to experience currency weakness.  That is, an IMF program in and of itself is usually not enough to support a currency under pressure.  We looked at Mexico, Argentina, Brazil, Turkey, Russia, Thailand, Korea, the Philippines, and Indonesia.  All of these currencies (with the exception of Korea and Turkey) saw their currencies remain weaker 5 years after the start of their IMF program.  Since July 15, when the dollar bottomed against the euro, the hryvnia (UAH) is down 9% vs. USD.  This compares to HUF (down 21%), PLN (down 20%), CZK (down 19%), RON (down 18%), and TRY (down 12%).  There is no way that UAH should be outperforming so much in this environment, and we expect it to play catch-up with the rest of the region soon, IMF or no IMF program.