Azarov reminded Yushchenko of something

The forecast Ukrainian former Premier Viktor Yushchenko made the Monday before last about the imminent fall of the hryvnia in the spring of 2002 must have created a far less profound impression in this country than his illegally taped and publicized telephone conversation with Kyiv Mayor Oleksandr Omelchenko. Little wonder. Society has again showed its predilection for the hot stuff rather than for analysis of the real actions of politicians. The exchange-rate outlooks of the nation’s proclaimed messiah, who once preached that the stable hryvnia is an unbreakable moral basis of his support by what he called the Ukrainian grassroots, have not yet been heeded. Meanwhile, such outlooks allow us to suggest that this alleged market signal from Mr. Yushchenko is primarily politically motivated. The hryvnia, which earlier used to plummet immediately after such provocations without waiting for the dates of fall to be set, this time did not stumble either on Tuesday or on Wednesday but is still showing a clear downward trend.

Now let us imagine what would have happened if Mr. Yushchenko had made this statement (inadmissible in the opinion of some Day experts) in the times when he headed the National Bank or the Cabinet of Ministers. The report (in the Internet newspaper Ukrayinska pravda quoting the Our Ukraine press service) “Yushchenko Forecasts that the Hryvnia Rate Will ‘Drop Significantly’ in the Spring of 2002” would have been a real bombshell in Ukraine. Everybody would have rushed to storm the currency exchange kiosks without waiting for the spring, for dear Mr. Yushchenko said so. It is unlikely that the former National Bank governor and premier does not understand that this can happen due to failing to observe the declared budget and a negative trade balance (Incidentally, according to the State Statistics Committee, this balance was positive in January to November 2001, when both export and import registered a 14% increase, with export exceeding import by $661.5 million, while in the times of Mr. Yushchenko’s premiership trade balance actually dropped from $2.3 billion (1999) to $1.7 billion in 2000).

Conveying the ex-premier’s sermon, his press service claimed, “If the government fails to effectively and adequately address the two problems, this could eventually destabilize the hryvnia.” But while earlier the Ukrainian grassroots would have immediately believed this and got down to rescuing their wherewithal, today a statement like this can only be regarded as an undisguised attempt to put the skids under the new government and premier, which have achieved quite good macroeconomic results without messianic rhetoric. It would be good to recall here that it is Yushchenko who personified “the strong hryvnia” when he was in power. Experts have long pointed out the excessive price for this strength and a formidable dependence of the nation’s industry on foreign markets. Now, by all accounts, it is attempted to put the blame for this policy results on Mr. Kinakh. Does this mean that Mr. Yushchenko considers the hryvnia alien, not his own?

Yet, some experts see in Mr. Yushchenko’s statement not only political motives but also the desire to influence the situation. This opinion should not be left unattended: it is important to find out to whose specific mill the grist is being carried. Judging by the statement’s text, the aim of Mr. Yushchenko’s supposed currency rate action was, apart from trying to cause panic in, among other things, government institutions (“The problems of the budget deficit should not create problems for the hryvnia,” Mr. Yushchenko hints at the responsibility of the Kinakh government), to exert pressure on the government and simultaneously leave National Bank resources intact: “One should not overestimate the role of the National Bank of Ukraine, which can only occasionally influence the hryvnia’s rate, but not the tendencies of the Ukrainian economy.” Mr. Yushchenko also expressed the hope that the NBU would not allow “burning out” this country’s hard-currency reserves to maintain the hryvnia’s rate. Thus Mr. Yushchenko openly favors the hryvnia’s devaluation and, hence, the inevitable inflation. This will in turn bring the population’s purchasing power still down and further shrink Ukraine’s already feeble domestic market. We leave aside the question whether this is related to the program objectives of a certain bloc to unite the nation around the idea of building a welfare state and restoring public trust in the existing state.

Meanwhile, the complexity of the current financial and political situation, in which the interests of exporters and importers have intertwined and simultaneously run counter to each other, making one more version possible: by taking an anti-hryvnia stand, Mr. Yushchenko signals his preparedness for a compromise and negotiations with his “industrial” opponents from For a United Ukraine. It is toward this bloc that steel mill managers, the most powerful group of exporters, is oriented. And it is their business that would cash in on devaluation. Oddly enough, this currency statement almost coincided in time with the report that the Our Ukraine leader is prepared to cooperate with For a United Ukraine in the future parliament. Against this backdrop, the statement made by Mykola Azarov, chairman of the State Tax Administration, at an Anti-Corruption Forum press conference looks either sensational or not all. For a United Ukraine members favor an alliance with the self-consecrated messiah or non-participation in the elections lets Mr. Azarov behave logically. Whatever happens, the publican-in-chief has shown a good political memory and confirmed the reputation of a connoisseur of real economic policies, “What puts me on my guard is the forecast of the hryvnia’s downfall. We have been keeping the hryvnia afloat for two years, sometimes contrary to our own interests, and now suddenly forecast that the rate is going to plummet. But when, two years ago we said: let us look at the tendencies, calculate, take a cautious approach, and bring the hryvnia down into line with the inflation rate, we were, for some reason, accused of opposing a stable national currency. It is strange that, although we’ve had inflation — it was high the year before last and is about 6% this year — the hryvnia has risen. Why has it done so in the past two years? Only to come down in a flash, as it did in 1998, for example? This is also the case of lobbying certain interests... Our largest financial and economic groups must show their economic and financial interests on the political level openly, publicly, and transparently. Only then will this country be able to map out a long-term political course, taking into account, of course, the interests of these financial-industrial groups. No economic strategies should be adopted if they run counter to the latter. Their interests should be taken into account. Otherwise, they will vote down the law on laser discs today, put the alcohol market in a shambles tomorrow, and then bring down the hryvnia...”

Incidentally, as the hryvnia will not drop by more than 5% in 2002, according to the NBU currency regulation department and its head Serhiy Yaremenko, the NBU plans to revise the hryvnia’s estimated average rate in the current year. Mr. Yaremenko recalled that, when the National Bank was estimating the previous 2002 average rate as UAH 5.6/$1, it assumed that the rate would be about UAH 5.45/$1 by the end of the year. “With the rate being UAH 5.3/$1 by the end of last year, an altogether different value is now required. So the average rate will be much lower than UAH 5.6/$1,” Interfax-Ukraine reports. He added that the altered estimated values would help avoid mistakes in informing market operators about the exchange rate outlook for the current year. According to him, the new final outlook for the national currency rate are expected to be approved by the NBU board on February 8.

It will be recalled that it is the National Bank that bears responsibility for national currency stability. To sum up, NBU governor Stelmakh is in an unenviable situation, being involved in a serious conflict of interests.