Following the imposition of capital controls towards the end of February, Ukraine’s currency, the Hryvnia recovered a bit over a period of six days. Since then it has been nearly all downhill, losing to the US dollar in 10 out of the last 11 days.

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Given that about half of Ukraine’s debt is in foreign currencies, the latest plunge spells renewed trouble.

The Economist notes

The Ukrainian shadow economy is one of the biggest in the world—at around 50% of GDP, according to IMF research. Businesses operating underground tend not to pay taxes, further depriving the government of funds. And last week Ukraine’s new prime minister estimated that $37 billion had gone missing during Viktor Yanukovych’s rule.

Right now Ukraine is not too worried about improving economic management. But big bills are imminent: Ukraine needs to find about $25 billion this year to finance its large current-account deficit and to meet foreign creditors. Foreign-exchange reserves are only $12 billion. Default is certainly on the cards.

Default back in play? Probably not, but a wrecked country is a near certainty.

The Troika is highly likely to put together some economically crippling “aid” program to stave off default just as it did to Greece and Cyprus.

Mike “Mish” Shedlock