Early this July the hryvnia's foreign exchange rate has dropped by 2.23%; a few days ago the US dollar sold at Hr 2.1124, whereas at the beginning of this month it was Hr 2.0666. Our hryvnia is getting cheaper, boosting real prices, while a growing number of goods in daily demand hide behind the so-called "conventional units" otherwise known as dollars.
NBU Governor Viktor Yushchenko attributes this decline to the foreign buyers (formally known here as "nonresidents") of Ukrainian government bonds who got their rather high yield ($130 million) and took it with them out of Ukraine, because they no longer wanted to support the shaky financial pyramid built by the Cabinet. The National Bank had to part with almost as much ($150 million) on the money markets to keep the sinking hryvnia afloat. Of course, there is only so much hard currency Ukraine can splurge. Last year, the national hard currency reserve was depleted by $278 million, and Ukraine still has to pay staggering sums under commitments to both foreign and domestic creditors (e.g., Hr 1 billion payable July-August; $1 billion to be paid come September...). Prof. Gerard Duschen, addressing a seminar for newly elected People's Deputies, said that if the Ukrainian government fails to honor its obligations the arrears thus accumulated may well get out of control.
How will all this affect Ukraine's man in the street? Prof. Duschen says the market will see further hryvnia decline, yet this will not solve the problem of the next round of inflation; the process will no longer be stoppable, and this inflation may well grow into hyperinflation, causing a further fall in production.
Under the circumstances, the Ukrainian Cabinet is placing hopes in the IMF's next handout, making every effort to meet its requirements. Presidential Adviser Valery Lytvytsky, fresh from a visit to the United States, feels confident that Ukraine will be lent a hand. When interviewed by The Day, he specified that Ukraine would have to work hard on its end (i.e., implementation of the President's economic edict series, of course). Analysts, however, do not consider these edicts s a serious radical gesture, pointing to Russia and its denial of short-term commitments, adopting a Ukrainian-like pyramid instead – which is so very hazardous to the economy. Ukraine could follow suit, of course, making a U-turn from domestic and foreign borrowings. However, its recently determined negative financial ratings would inevitably result in more expensive foreign loans. The big question: Is it worth trading one problem for another?






