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March 31, 2014 at 09:28 AM
Federal Reserve Chairwoman Janet Yellen’s view that government support of economic growth is not going to disappear has lifted U.S. markets and those of emerging markets over the past few days.
But, according to Mohamed El-Erian, a lot more needs to happen to “decisively lift the cloud of the Ukrainian crisis that hangs over global equity markets.”
On Monday, the former CEO of PIMCO, who is now chief economic advisor to Allianz, shared a list of five conditions that could prompt investors to take a stronger, more robust view of global equities. His blog on Yahoo Finance highlighted the following:
1. After annexing Crimea, Russia cannot make any other serious political or military moves that would cause further global instability.
“The hope is that this latest rounds of talks [between Russian and U.S. leaders], which started yesterday, would be a more effective catalyst to meaningfully de-escalate tensions; and quickly before some disruptive border skirmish occurs, inadvertent or otherwise,” he wrote.
2. Ukraine needs “tens of billions of dollars of exceptional funding” from the international community to support its economy, budget and foreign reserves.
Such financial resources are necessary, El-Erian says, so the country can pay public workers, including security forces, and safeguard basic supplies that it imports, such as Russian gas.
The International Monetary Fund, the economist says, is poised to pursue a “standby arrangement” with Ukraine of about $18 billion.
El-Erian cautions, though, that it’s unclear “whether the Ukrainian government would be able to implement the policy actions negotiated with the IMF. There are also questions as to whether private creditors would ultimately face haircuts on their claims on Ukraine.”
