Ukraine holds steady amid financial crisis (09/06/98)

Ukraine holds steady amid financial crisis

by Pavel Politiuk

KYIV - Ukraine's President Leonid Kuchma said on September 1 that the trade band of the Ukrainian currency, the hryvnia, will be changed in the next few days, but it will be an insignificant change.

"There is some kind of devaluation going on in all our neighboring countries but I say again, in no way will this mean a collapse (in the currency)", President Kuchma told journalists as he opened a military college in the small town of Boyarka, outside Kyiv.

President Kuchma also said the change to the hryvnia's trading band, or currency corridor, will be made as soon as the International Monetary Fund decides on a three-year $2.2 billion Extended Fund Facility loan.

President Kuchma said he hopes the IMF will make its decision some time this week.

Last Friday the International Monetary Fund said it had nearly completed a review of economic conditions in Ukraine and could release a $2.2 billion loan to Ukraine very soon.

Michael Camdessus, IMF director, said in a Washington news briefing that he was prepared to call a meeting of the lending agency's executive board on short notice to consider Ukraine's request for financial help.

All Ukrainian authorities, including President Kuchma, Prime Minister Valerii Pustovoitenko and National Bank of Ukraine Chairman Viktor Yuschenko said Ukraine is not threatened by large devaluation of the national currency, and the economic and financial situation in Ukraine is absolutely different than in neighboring Russia.

However, the leaders have said that Ukrainian trade relations with Moscow - Ukraine's largest trade partner, with some 40 percent of Ukrainian exports going there - is the main reason that Russia's currency devaluation is affecting Ukraine.

Ukraine has taken a battering from the financial instability jolting its larger neighbor and former colonial master, Russia. With Russia accounting for about 40 percent of Ukraine's foreign trade, economists and analysts in Kyiv said it was only a matter of time before last week's devaluation of the ruble caught up with the hryvnia.

Mr. Yuschenko called a news conference on August 28 to try and talk up the hryvnia, which was introduced in 1996 to replace a previous currency destroyed by hyperinflation.

"We want to assure you that there is no profound reason for the hryvnia's devaluation," Mr. Yuschenko said adding "the Russian factor is pressuring us but we should not exaggerate it."

"We want to be able to have the right to change the currency corridor it we feel market tendencies need intervention from the National Bank," he said.

But on September 2, Mr. Yuschenko said the currency reserves of the central bank fell to a meager $800 million from $1.1 billion on August 21.

Despite repeated calls by the National Bank that there was need to devalue the hryvnia, the currency closed on August 31 at 2.2500 per dollar, the very limit of its trade band. On September 1 and 2, the rate was unchanged at 2.2500 hryvnia per dollar.

In inter-bank, trade the hryvnia was quoted as low as 3.500 per dollar.

The trade band was set at 1.80-2.25 hryvnia per dollar until the end of this year, to protect investors against currency risk.

"The trading band was aimed at investors who put their money in Ukrainian treasuries, but now the situation in the country has changed," a dealer at a large Ukrainian commercial bank said. "Non-residents have now been offered yields on treasury bills in hard currency and the trading band lost its role in shielding investors from the currency risk," he said.

Ukraine's foreign debt as a percentage of GDP is much lower than Russia's.

The financial crisis in Russia and in Ukraine also has debilitated the stock market in both countries. Leading Ukrainian shares fell 10.6 percent on September 2 and Ukraine's PFTS share index fell to a new record low of 22.21.

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