CABINET PROCEEDS TO BUILD NEW INTERNAL GOVERNMENT BONDS’ PYRAMID
The Cabinet issued year 2000 discount internal government bonds (IGBs) worth a total of UAH 5.17 billion, to be secured by the Finance Ministry acting on the government’s behalf. The ministry will further determine emission amounts within the limits of the above sum. The National Bank of Ukraine will act on its own initiative as the general agent to service the issue and redemption of the bonds.
Simultaneously, the 2000 budget program envisions UAH 3.89 billion in IGBs, equal to the amount of liabilities assumed by the government earlier, reports Interfax Ukraine. Viktor Yushchenko said earlier his Cabinet intends to issue IGBs, the amount of which will surpass that of the earlier issue. On April 12, the Premier stated that the IGBs will be issued to coincide with Ukraine’s public debt maturity dates, starting April 14 and lasting through the year. In 1999, Finance Ministry sold IGBs worth UAH 3.8 billion and redeemed UAH 3 billion; in 1998, it was UAH 7.29 and 8.5 billion, respectively.
Oleksandr Suhoniako, President of the Association of Ukrainian Banks, told The Day , “This is a normal step made by the government to access the stock market and revive financial instruments without which no state can function in principle. It is a signal to the market to revive its confidence in the government. It is followed by yet another positive signal: the Finance Ministry and Cabinet will serve their IGB debts dating from earlier periods. True, more definite steps must be taken to restructure these debts; primarily with regard to domestic investors. Such steps have long been awaited, yet they are still to be completed. By and large, the IGB issue is a positive step.”
Oleksandr Narbut, President of the Pulsar Corporation, stressed in an interview with The Day that the government is now worried about the approaching date of summing up Ukraine’s public debt and carrying out the terms proposed by the foreign investors, meaning deferred adjustment interest payments. According to Mr. Narbut, the total amount exceeds $220 million, a heavy blow to the national budget and NBU reserves (add here domestic payments on adjusted IGB liabilities). Mr. Narbut also believes that the current IGB issue has to do with the problem of current liquidity, due to the Cabinet’s failure (10%) to secure anticipated budget revenues. Also, Mr. Narbut believes there are the Cabinet’s restructured liabilities toward the National Bank, so the government is trying to keep from making any monetary payments by making up for them with this 2000 IGB release.
By an large, the 2000 IGB issue situation is favorable, considers Mr. Narbut, for the commercial banks register a certain liquidity surplus; considering the shortage of solvent and reliable borrowers, the banks are interested in government securities whose yield is supposed to exceed the NBU rate. “I think that market operators will meet these bonds cautiously,” Oleksandr Narbut says, “meaning that whoever buys them will enjoy quite good returns. This will be the positive aspect. The negative aspect remains that Viktor Yushchenko spoke a lot about subsidies being channeled primarily into the real sector, while this IGB issue will never work in that direction.”
Former Deputy Premier and now People’s Deputy Viktor Pynzenyk told The Day, “The government proclaimed a balanced budget. The question is how they propose to keep borrowing, having this deficit-free budget? Such an approach is incomprehensible. Secondly, the current financial situation rules out all talk about such confidence that would allow mass demand for internal government bonds. Even if we keep our hryvnia stable, creating an atmosphere of confidence will take time. All things considered, Ukraine has no right to borrow any money from anybody. This approach is no good. We cannot afford to run up new debts.”
