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Ukraine: Currency Downfall Prompts Emergency Measures


By Viktor Luhovyk/Natalia Tchourikova



Kyiv, 24 November 1997 (RFE/RL) -- The recent turmoil in world markets has reached Ukraine. Its currency, the hryvnya, has drastically declined, prompting the national bank to take urgent stabilizing measures.

The hryvnya started falling steadily against the U.S. dollar in recent weeks. The situation culminated last week, with no demand for hryvnya at the Ukrainian Interbank Currency Exchange causing the currency's official rate to fall to a record-low to the U.S. dollar Wednesday. The hryvnya came close to leaving the currency corridor -- rates of allowable fluctuation of exchange rates -- that the Ukrainian government introduced this year.

Foreign investors began fleeing Ukraine's market. This was certain to have a major impact on the entire economy since foreign companies hold half Ukraine's 6 billion hryvnya treasury bills. The intervention by the Finance Ministry promising much higher yields has failed to change the situation.

Two days ago (Nov. 22) the National Bank of Ukraine announced a set of emergency measures designed to stabilize the hryvnya. Taking effect today, these measures include a 10 percent interest rate hike to 35 percent, streamlining of accounting procedures and an increase in commercial bank reserve requirements to 15 percent from 11 percent.

The moves reflect the determination to used market methods to cope with the currency crisis. "The stabilization of the hryvnya will be regulated by market methods," said last week the bank's board chairman Viktor Yushchenko. He added that "we will not allow the hryvnya to fall."

Ukraine's President Leonid Kuchma also pledged support of the currency. Speaking two days ago (Nov. 22) in Kyiv, Kuchma downplayed the hryvnya's decline and said that the currency will remain stable.

Indeed, there are signs that the hryvnya has stabilized. But whether this will last is less certain. The streamlining measures are likely to tighten the monetary situation but this, in itself, does not mean that they will improve it. Its immediate results will be to make credit more expensive. The long-term impact is likely to lead to price rises.

Although the hryvnya stabilized late last week, other potentially destabilizing factors are still present. Currency trading among Ukraine's banks was last week well outside the currency-exchange corridor. And, some Russian banks - the largest holders of the Ukrainian currency outside Ukraine - were offering hryvnya at about 16 percent below Kyiv's official rate.

According to some experts, this week will be decisive for the future of the hryvnya.

This Wednesday the International Monetary Fund (IMF) is expected to announce whether it will release the next installment of Ukraine's 150-million-dollar credit. The IMF's opinion is crucial for many foreign investors on whether to re-enter Ukraine's treasury bill market. Experts say that if the IMF's decision is negative, the hryvnya will fall under the pressure of massive withdrawal from the treasury bill market - ahead of political uncertainty caused by next Spring's parliamentary elections in Ukraine.

The IMF's positive assessment of recent economic indicators is also vital for Ukraine's planned first bond issue in the Japanese market. Cash-strapped Ukraine is determined to go ahead with this first international bond issue, despite the continuing instability on Asian bond markets.
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