Who Needs a Cheap Dollar?
The middle class loses its savings
If you had a thousand dollars tucked away for a rainy day, last week you ran short of about 300 hryvnias. After the government dealt a series of budgetary blows to small-scale business (ostensibly to “streamline” the situation), the National Bank of Ukraine (NBU) launched an attack on the middle class. The bitter irony is that the members of this class, who played a decisive role in Viktor Yushchenko’s victory, are now on the short end of the stick. As for oligarchs, they are sure to ride out the exchange rate storm one way or another.
On April 22 the debate on the hryvnia’s dramatic rise, engineered by the NBU in the twinkling of an eye, spilled over from kitchens, where defenseless housewives were rolling their eyes, into parliament. To tell the truth, opinions differ. Those who oppose the exchange rate jump are not only the majority of the middle class, but almost all employed people who usually keep their savings in dollars. A farmer or a stallholder, who finds it difficult to swallow the macroeconomic pap he is being fed, is well aware that the NBU’s hocus-pocus is daylight robbery pure and simple. Topping the protest pyramid are exporters, who believe that the policy of strengthening the hryvnia’s rate is aimed precisely against them. This step is only being backed by high-brow economists who are thus forced to act against their own families.
The debate in parliament was extremely heated because the MPs brought to book both NBU Governor Volodymyr Stelmakh and cabinet, which had clearly prompted the central bank to adopt this drastic measure that caused powerful ripples across our almost entirely “dollarized” country.
Naturally, Mr. Stelmakh reassured the MPs that the hryvnia’s revaluation was an economic boon that would promote higher living standards among the population. In defending this overtly pro-importer step, Mr. Stelmakh also announced that 20% to 60% of the fixed assets of Ukrainian enterprises are old and require modernization, to which the strengthened hryvnia would also contribute. At the same time, he pointed out that Ukrainian imports are largely fuel-oriented, which can also boost inflation if the hryvnia rate remains low. Isn’t this the crux of the matter? The Day’s experts believe that the government prodded the NBU into revaluating the hryvnia under pressure from Russian oil traders, who demanded this concession in exchange for their consent to cut oil prices. In other words, the story that a cheap dollar was “requested” by oil traders looks to be the most plausible one.
The National Bank is not ignoring the criticism; it just seems to be choosing a lesser evil. Besides, Mr. Stelmakh failed to mask his dissatisfaction at having to explain things to the parliamentarians so urgently. He said that the specific nature of the exchange-rate policy leads to the conclusion that it is ineffective to discuss this issue in parliament. His remark immediately triggered a strong reaction. Parliamentary Speaker Volodymyr Lytvyn proposed amending the law to enable the Verkhovna Rada, which approves the appointment of the NBU’s governor and some members of the supervisory board, to have certain levers of control. There is no doubt whatsoever that these amendments will be adopted. After all, every single fraction in parliament comprises the majority of those who are dissatisfied with the NBU’s measures. Incidentally, quite a few people have condemned the revaluation process, and there is much criticism of its fast pace, the rising expenses of ex-partners, and hence the slower pace of GDP growth.
