“Either we all treat the hryvnia courteously or…”

On September 23, the president, premier, and National Bank of Ukraine (NBU) governor met owners and managers of the 30 largest exporting companies, importers, and banks behind the closed door. The meeting’s agenda is how to keep the hryvnia afloat, begin to credit the real sector, and ward off further economic slump. In addition to state-run banks’ governors, The Day also saw such participants as Delta Bank owner Mykola Lohun, PrivatBank head Oleksandr Dubilet, Raiffeisen Bank Aval chief Volodymyr Lavrenchuk, and Oleh Bakhmatiuk, owner of Eurasia’s largest agro holding Ukrland Farming. We asked the latter about his expectations of the meeting.

“We’ll be talking about how to keep the economy afloat,” Bakhmatiuk said. According to him, the current exchange rate suits the exporters but, for the country as a whole, 12.5 hryvnias per dollar is a limit that must not be exceeded. In his words, businesspeople can see the government’s readiness to meet them halfway (reducing the rate of hard currency mandatory sale to 75 percent of the earnings) and are also ready to make concessions.

“There will be a straight talk. We must perhaps say honestly to each other about what is going on, diagnose our malady, and ponder on the way out,” said Olena Shcherbakova, director of the NBU’s General Department for Monetary Management, shortly before the meeting.

The meeting was held. Yet the participants told The Day that it had passed in a civilized atmosphere without the expected passions and criticisms.

“There was today the first ever meeting of exporters, importers, the regulator, the premiere, and the president. It is common knowledge that the exchange rate situation has caused some panic among the populace. Therefore, those involved in this process should do something to find a balance in the currency question. The meeting’s chief message is: all should be mutually responsible at this moment, for the attempt of one to cash in on hard-currency operations will aggravate the problems of the rest,” says Roman Shpek, head of the Independent Association of   Ukrainian Banks. In his words, everybody is aware that some players are reaping benefit from panic in this situation. So, Poroshenko made it clear that whoever did not work transparently would be brought to justice in the long run. It was also announced that Ukraine was negotiating the increase of financial aid from international creditors. The president also instructed that a calendar of hard currency earnings and payment dates be drawn up for the current and next years. “It is now clear to everybody that the overall rescue depends on the actions of each,” the experienced banker summed up.

“As a result, all participants in economic production and the financial sector are aware of the need to stabilize the currency exchange rate because further devaluation is harmful to the economy. Banks were also called upon to be fair about their [hard-currency] requisitions and not to mark up the exchange rate artificially. The financial sector was told this in no uncertain terms. Instructions were given to certain groups of banks,” said Volodymyr Lavrenchuk, chairman of the Raiffeisen Bank Aval board.

Another participant in the meeting, a high-profile exporter who preferred to remain anonymous, assessed the results as follows: “The main question was, of course, stabilization of the currency exchange rate. But I don’t think we should focus on this only, for it is nothing but an index, while the most important thing today is domestic growth. Accordingly, there should be a more macroeconomic policy rather than stop-gap measures which will delay the making of these decisions for some time.” In his words, no additional actions to keep up the exchange rate were announced, but the NBU has set up a currency fluctuation corridor – 12.5-13.5 hryvnias per dollar.

Speaking to The Day confidentially, one more participant said indignantly that it was nonsense to allege that the NBU is unable to settle the currency market. “We are urged to bring all the hard currency back to this country. OK, we agree. But let them open the lists of the banks which receive refunding so that everybody can see where this money goes and from whom one can really buy hard currency,” he says.

When will these lists be opened? Ms. Shcherbakova said the NBU was supporting this idea, but the current law bans this. The NBU may be banning changes, but I wonder who can forbid Petro Poroshenko, the former NBU governor and now president of Ukraine, to move the required changes in parliament. Or has the NBU not informed him that these changes are needed? The questions are rhetorical.

“There are all preconditions to stop the inadequate leaps of the dollar. The macroeconomic picture says that the rate can and must be stabilized. The National Bank of Ukraine will do its best to stabilize this situation,” Ukraine’s Prime Minister Arsenii Yatseniuk said optimistically after the meeting. He may be right, but the banks’ words and deeds are not enough because there is also a third side in this situation.

“Banks are the last economic entities in Ukraine, which would like the exchange rate to go up,” says Credit Agricole bank governor Yevhenia Chemerys. In her words, there is a critical rate for every bank, when “absolutely all of us will lie down” if this rate is reached. “The point is that a part of our liabilities is expressed in a foreign currency, while capital is fixed in the hryvnia,” she explains. The black currency sales market is a third side in this case.

And, while the NBU has limited the daily sales of foreign currency to Ukrainians (not more than the equivalent of 3,000 hryvnias per person) in retail outlets in order to curb the currency panic, there is not yet a bone in the truck on the black market. For this reason, the difference in the purchase and sale of hard currency between the official and black markets has already jumped in some places to almost 1.3 hryvnias per dollar and continues to skyrocket. So, it is the currency sales black market that is causing panic to a large extent.

“The times are very hard, the nerves are taut, and the financial system keeps coming under an attack. Who can hinder this? The Prosecutor General’s Office, the Security Service, the intelligence agency… These are the mechanisms that must be brought into motion. The NBU should also be more resolute in such matters. It is not peacetime, it is an unconventional situation, so adequate measures must be taken,” Oshchadbank governor Andrii Pyshny says, commenting on the steps that could curb the black market.

“The less cash is in circulation, the less money is in the black economy. Therefore, we should begin to reduce the amount of cashless settlements. It makes up 150,000 hryvnias now. In my view, it should be fewer than 50,000 hryvnias,” says Ukrgazbank governor Serhii Mamedov, suggesting a way to bring down the currency black market.

Bankers believe that if no algorithm is found in the near future, we should expect a growth of inflation and a new devaluation. “Further pressure on the exchange rate will cause inflation to rise. My advice is not to buy dollars now, for we may thus saw off the bough on which we are sitting. No one needs galloping inflation,” is the opinion of PrivatBank governor Oleksandr Dubilet.

“The more problems the populace has, the more problems business will have,” adds businessman Vitalii Antonov, the main owner of Halnaftohaz.

In the opinion of the market players The Day has interviewed, the government, the NBU, and the head of state should not only solve the currency problem, but also make a concerted effort to give the market an impetus for crediting. How can this be done? Dubilet suggests turning back to question of guaranteed payments. “These forms of settlements and putting floatable assets into the industry are supposed to have a positive effect on the unblocking of payments between enterprises because the interest rate is 4 percent p.a. for guaranteed payments. These credits are in fact to be paid off in the future, so the rate is low and only covers risks. This will allow the economy to be credited, which the NBU and the sector wish so much,” he explained to The Day.