Ukraine Could Go Bankrupt

The most favorable result (for the authorities) of the mission's work in Kyiv would be if already on January 26 its Ukrainian head Muhammed Shadman-Valavi announced that he will recommend to the Board of Directors to grant a loan to Ukraine. In this case there would be no need in cardinal changes of the year's scenario, written into the budget, in the election headquarters of certain candidates for President, and in NBU accounts. However, according to unofficial information, the present IMF mission may refuse to pass a final verdict. The history of two months ago will then be repeated: neither war nor peace.

Meanwhile they say in the corridors that the NBU will have to determine the hryvnia's rate already next week. It is a desperate step to do so without IMF approval. (Recall that under conditions of distrust in the authorities, any announcement of changes in the national currency rate would be interpreted as a distress signal.) And there are many unclear things about the crux of future foreign exchange policy.

It will be most difficult to come to mutual understanding in negotiations between the Ukrainian government and the IMF mission in the question of exchange rates for 1999 and in the mechanism of relations between the NBU and the Ministry of Finance, said Economy Deputy Minister Viktor Kalnyk last Wednesday. In other words, in choosing between a floating exchange rate and clear predictable state policy on the one hand and fixed rate and momentary pre-election policy on the other, the Cabinet of Ministers will opt for the latter.

The former naturally suits the NBU. At least it is difficult to explain the emotions Viktor Yushchenko showed in public last Wednesday evening. "As a matter of fact," he told Interfax-Ukraine, "I am disappointed about many things, which arise concerning this question especially on the Ukrainian side. I see what representatives of Ukraine's print media say and the question arises whom are they serving? There is an impression that these people, these establishments, and these state branches of authority care nothing at all about Ukraine...

"We commit a major crime against Ukraine, when we allow such comments on Ukrainian events. Unfortunately, I cannot be more specific."

It is difficult to figure out to whom he addressed his reproaches. Usually Yushchenko does not allow himself even a slightest hint of criticism of the authorities. The situation is obviously critical, if he did. What can be worse for the NBU, than the national currency and banking system's collapse? And this threat is very real.

The banker's anxiety can be easily explained. Absence of external financing will inevitably lead to a situation where Ukraine will be forced to admit its inability to pay off previous debts and will announce its bankruptcy. At least the analytical note of the Finance Ministry, On Measures to Make Foreign State Loans More Effective in 1999, prepared for the meeting of the Cabinet of Ministers on Friday, January 22, describes the situation this way. (According to the Finance Ministry calculation, the total amount of financing Ukraine needs to attract externally is estimated at $2.2 billion. $520 million from this sum can be granted to support the national currency on the account of IMF's EFF loan.)

However, catastrophe has begun to loom before the government and nation long ago: no reforms have been implemented since the day of their announcement. This is why it will not be the guest creditors, who will be held responsible for decisions Ukrainian politicians make, but the country's population, who elected those politicians.

PS: The practice of the currency corridor will continue in Ukraine in 1999 and "this is not a matter for discussion," presidential aide Valery Lytvytsky declared in an interview to Interfax-Ukraine.