Ukraine advised to free the hryvnia

Bankers are now concerned about the “conservation” of their current condition, and the currency regime the government will opt for, Morgan Stanley Ukraine managing director Ihor Mitiukov said at the opening of the 5th Ukrainian Banking Forum. The expert noted that, while bankers had gathered here last year to discuss how to protect their businesses from the crisis and stay afloat, this year the forum was focused on stabilizing the current situation. On the whole, there are fewer problems now than in the crisis-ridden 2008-09. Yet hard-currency credits and the hryvnia rate still remains an unsettled issue.

Analyzing Ukraine’s banking system, Max Alier, the International Monetary Fund Resident Representative in Ukraine, emphasized that it was well organized in general. “The banking system is sufficiently liquid and adequately capitalized,” he said. At the same time, Alier noted that it was important to reform the banking law in order to solve, in particular, the problem of creditors’ rights.

Moreover, the IMF advises Ukraine to gradually make the currency exchange rate more flexible, the resident representative said, arguing that this transition would make the economy less vulnerable to external risks. “We believe, and even foresaw this well before the crisis, that an export-oriented economy, like the Ukrainian one, requires a flexible exchange rate regime. So the introduction [of this regime] would facilitate a response to external shocks,” he stressed.

This country’s main financial institution also agrees that currency policy in Ukraine needs to be considerably liberalized. Yet they warn that ill-considered steps on this path may cost Ukraine a lot. So they suggest choosing a well-balanced mechanism for reforming currency regulation. “Liberalization should not be an end in itself. When we are talking about a flexible exchange rate but do not introduce any elements of currency insurance or derivatives, if we allow borrowing banks to face further risks, it is a road to nowhere,” Petro Poroshenko, Chairman of the National Bank of Ukraine’s Board of Governors, emphasized.

As for the likely ban on hard-currency crediting — an issue of special interest for Ukrainian bankers today — Poroshenko said it would be wrong to impose a radical ban on this in the current economic situation. Actions of this kind are only justifiable during a crisis. “Today, we must take a cautious approach to liberalization and the cancellation of these restrictions. In my view, there are no economic grounds so far for a serious step towards canceling hard-currency crediting,” he said.

The National Bank’s board chairman also takes a dim view of the government’s draft law allowing natural persons to open bank accounts abroad without an NBU license. Poroshenko is convinced that these actions will destabilize the state’s finances. “This seemingly attractive idea may do grave harm to Ukraine’s banking system. We can see an outflow of deposits from banking accounts and the absence of incoming funds. This will deprive the Ukrainian economy of capital. And there will be nothing to make up for these losses,” Poroshenko said. In his opinion, there should be a step-by-step approach to liberalization in this sphere: “I think we may begin with allowing capital investments abroad, while allowing individuals to open hard-currency accounts should be at the end of the list.” The expert believes that opening this kind of account will pose the following problem: the Tax Administration of Ukraine will be unable to control individual incomes derived from foreign deposits, which will in turn inflict damages on the state budget.