Ukrainian citizens, raised to respect statements made by their government officials, were pleased to hear the President say he had been requested by the IMF to let the Ukrainian people know that the Fund “will not leave Ukraine one on one with all its problems.” Interfax-Ukraine reports Leonid Kuchma declared that Ukraine will be able to manage its financial crisis and there is no reason for the public to be nervous about it.
Yet, the prescribed tranquilizers did not work well. On Tuesday, the hryvnia exchange rate (UAH 2.2485/USD 1) fell only 15 points short of the currency corridor limit set by the National Bank for 1998. At currency exchange kiosks, where average citizens get their exposure to the international financial market and rescue their money from devaluation, the hryvnia was fluctuating freely beyond the corridor limits. On Wednesday, the buying rate for the dollar was 2.17-2.24 hryvnias, and the selling rate was 2.35-2.45 hryvnias.
Despite all this, the kiosk cashiers we interviewed had not yet registered any panic, although they did admit to a much higher demand for dollars than hryvnias. Whatever currency sellers say, the situation on Wednesday very much resembled an inflationary one. A finishing touch was a Cabinet resolution instructing local government bodies to make payments in-kind of wages salaries to employees of budget organizations. Good inflation hedge, isn’t it?
There was sense in thinking about it. On Wednesday morning, the Associated Press reported an IMF decision to postpone indefinitely consideration of issuing the $2.2 billion EFF loan to Ukraine. Initially the IMF intended to make a final decision by the end of last week.
The first tranche of the loan was supposed to be $220-250 million, which, as AP noted, would have been especially useful for a country with a chronic lack of cash, let alone an $18 billion foreign debt.
Meanwhile, the National Bank of Ukraine has intensified its pressure on commercial banks in an effort to lower dollar demand and relieve the hryvnia, even forbidding some of the banks to conduct exchange transactions. Likewise, tough measures at the Ukrainian Inter-Bank Currency Exchange allowed to keep the hryvnia within the corridor when there was virtually no demand for the compromised domestic government. In this situation, the Finance Ministry perhaps intentionally allowed a leak of information to Interfax-Ukraine on conditions for exchanging the current so-called discount bonds into coupon ones, redeemable during 1.5-5.5 years without a fixed currency return.
In a word, the banks were offered a voluntary-compulsory exchange with a 1.5-year deferment of debt payments to the state budget. Some financial experts claim that while this can somewhat slow down the hryvnia’s fall, it could also bring the banking system on the verge of bankruptcy. In an attempt to win time until the presidential elections, our government is likely to carry on its the pyramid game, with which the entire country is already fed up. For quite some time, pensions and salaries will be paid in pots and pans, yet time will come to pay off all the debts.
According to The Day expert, Doctor of Economics Marko Olivensky, the current financial crisis should be attributed to the interests of a group of international monopolies that want to expand into the FSU energy market. In Olivensky’s view, a multi-step combination affected first the German mark and then automatically the Russian ruble since 60% of all investments in our neighbor’s economy is German. The devalued ruble paved the way for international corporations to get low-cost energy resources in Russia. Ukraine simply turned out to be on this route and will also eventually have to pay for it with its property and further decline in living standards.






