Ukraine is the financial basket case of the day. Bloomberg News reports this morning:
S&P cut Ukraine’s credit rating by two levels last week to CCC+, seven below investment grade and the lowest in Europe. S&P also cut Latvia to below investment grade.
Investors demand a record 28.1 percentage points more in yield on Ukrainian government bonds than Russian, compared with a gap of 3 percentage points six months ago, according to JPMorgan Chase & Co. indexes. As recently as 2003, Ukraine’s bonds yielded 2 percentage points less than Russia’s.
Contracts to protect Ukraine government bonds against default imply a 69.6 percent chance Ukraine will fail to pay its debt in the next two years and 91.8 percent odds in the next five years, according to CMA Datavision prices for credit- default swaps last week.
European investors I talk to don’t think Ukraine is coming back. The conventional wisdom, attributed to former Citigroup president Walter Wriston, has been that countries do not default the way corporations do. A company can be liquidated but not a country. Well, that isn’t quite true. By the middle of this century, according to UN projections, 57 percent of the entire Ukrainian population will be dependent elderly. That of course is impossible. No country can survive where only 30 percent work and most of the remainder are elderly (and a few children).
The obvious thing to do is to get out while you can, which is what Ukrainians are doing as fast as their legs can carry them. Plumbers, carpenters, bricklayers, waitresses, chambermaids, and prostitutes pour out of Ukraine to whatever venues they can find. There will be no one left but old people, and they will freeze and starve (except to the extent that family remittances abet the situation). I mean this literally.
Dependency Ratios for Ukraine
Year   Total   Child   Old-age
2000__46__26__20
2005__44__21__23
2010__40__18__22
2015__39__14__25
2025__42__13__29
2030__45__12__33
2035__48__12__36
2040__52__12__40
2045__58__12__46
2050__69__13__57
Source: UN World Population Prospects
Total population is projected to fall from 46 million in 2000 to only 25 million by mid-century, but it is unlikely to play out this way, for emigration will preempt the slow and inevitable decline.
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