Ukraine launches Cuban Missile Crisis gambit in bid for IMF cash

By bne IntelliNews October 24, 2012

bne -

Inching ever closer to an economic crisis, Ukraine's government is trying a version of the Cuban Missile Crisis gambit in its negotiations to persuade the IMF to hand over some more money.

Prime Minister Mykola Azarov said on October 23 that he hopes the government can cut a deal with the IMF to access its stalled $16bn stand by agreement without raising household gas and heating prices. The reason the IMF froze the programme in the first place is that the government refused to hike household gas tariffs in 2011.

"I think there are prospects of continuing our cooperation and we are mostly performing in line with the [2010] programme," Azarov said, according to Reuters. "All the main monetary and qualitative criteria are being met. Of course, this creates a positive environment for renewing the programme. We have our minds set on reaching an agreement."

Azarov said he expects GDP growth, which slowed to 1% in January-September, to remain above zero in 2012 as a whole, and accelerate to 3.5% next year.

This is a version of the strategy employed by the USSR in the 1960s. at the height of the Cuban Missile Crisis, which had its 50th anniversary last week, Nikita Khrushchev sent two letters to US President John F. Kennedy.

The first letter, which arrived on October 26 1962, was relatively soft. It was personally penned by Khrushchev, and offered Kennedy a compromise that would end the crisis. The second, broadcast on October 27, was much more formal, and offered a much less palatable deal. It was obviously written with the participation of the Politburo, and left little room for compromise.

Kennedy decided to answer the first letter and accepted the terms. He simply ignored the second, harsher, letter. The ruse worked.

Ukraine's government is unlikely to be as lucky in its ploy to meet the 2010 conditions and ignore the 2011 conditions, which include hiking gas tariffs. The difference is that the downside for Kennedy if he didn't find a compromise with the USSR was unleashing mutually assured destruction. There is no downside for the IMF if it rejects Ukraine's gambit.

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