Hryvnia in Search of Where to Fall

After three days of intensive decline, the hryvnia rate at the Interbank Currency Exchange has virtually collapsed, falling last Wednesday by 5.3% from UAH 5.22-5.3 to the dollar to UAH 5.52- 5.56.

The dollar’s leap was mainly caused by negative expectations accumulated in previous days and reinforced by the conviction that the National Bank (NBU) will not intervene, Ukrayinski Novyny quotes bankers as saying.

Meanwhile, National Bank Governor Viktor Yushchenko, repelling last Saturday “attacks” from journalists regarding the hryvnia’s further fate, asked not to indulge in spontaneous debates on this point. “You ask me what the rate will be? You are asking what the temperature will be, without asking if we have fuel resources to maintain it.” According to Mr. Yushchenko, the National Bank must now make an imperative decision about the hryvnia’s further destiny in this specific situation. But how can we, he continued, “if we do not know the 2000 budget, debt service procedures, and the nature, depth, and dynamics of structural reforms, including administrative reform?” The NBU head noted that an untimely declaration of a certain trend in monetary policy could become a signal for the market, which means that the authorities are de facto waiving responsibility for the currency rate.

As it turned out, the virtual absence of a currency policy, of which Deputy Premier Serhiy Tyhypko spoke on the eve of recent talks with the International Monetary Fund and the World Bank, also warned of the “weakness of the central authorities.”

In response to The Day’s question about the hryvnia’s health, Association of Ukrainian Banks President Oleksandr Suhoniako posed his own: “And has it ever been healthy? For a chronic disease may sometimes be latent or it may surface, and then this makes it possible for it to be treated or even cured.” Mr. Suhoniako thinks the current devaluation is a natural process reflecting the state of the economy. “Nothing else could be expected,” he said, characterizing the process as controlled and evolutionary. In his words, any devaluation is dangerous for the creditor (the Ukrainian banking system) because capital becomes worthless. But the main entity which, in his opinion, has a radical impact on the currency market developments is not the National Bank, which he thinks is doing its job quite professionally, but the government and all authorities as a whole.

Deputy chairman of the board of governors of the Finance and Credit Bank Vadym Chankin, commenting to

The Day on what caused the hryvnia’s current collapse, said, “On the eve of the presidential elections, the government made some social program payments, paid off pensions as well as wages and salaries to the military and other public-sector employees. This is what is now pressing the market... The state has been pursuing before and after the elections a policy of immobilizing cash in circulation, which is also a destabilizing factor. In this case white money is separated from black, while previously both of them freely flowed between the connected vessels, as it were, (changed color — Ed.), thus maintaining a kind of stability. Now the state is pursuing a tough policy aimed at the final separation of the white circulation from the black one.”

NBU spokesman Dmytro Rikberg, meanwhile, told Ukrayinski Novyny that because of negative expectations exporters are holding back the hard currency they usually deposit in commercial bank accounts. Among the causes of devaluation, he also named the Finance Ministry’s debt to the National Bank and the absence of an approved budget. The hryvnia is floating in splendid isolation and seems to be weakening more and more.