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Ukraine: Officials Anticipate Currency Devaluation

Kyiv, 22 January 1998 (RFE/RL) -- Ukrainian government officials have conceded that efforts by the National Bank of Ukraine (NBU) to defend the Ukrainian currency have failed to relieve downward pressure on the hryvnia.

Prime Minister Valery Pustovoitenko this week announced that adjustment to the exchange rate is under discussion. He told a press conference that a group of financiers will go to Washington to discuss changes in the exchange-rate corridor.

Beginning early in the month, investors have been exchanging hryvnias for dollars and deutschemarks in anticipation of a worsening exchange rate. Some analysts now are saying that the government cannot adhere to its pledge to maintain the hryvnia at 1.75-to-1.95 to the dollar until July.

Wood & Company analyst Ivan Kompan estimates that the NBU has $2 billion in reserves. That's not enough, he says, to maintain the exchange rate long term.

NBU officials have kept quiet on the level of the central bank's reserves, and the bank's likely response to pressure on the currency. NBU spokesman Dimitro Rikberg said the bank expects to respond to press questions in the next few days.

Local financial analysts tell RFE/RL they anticipate a devaluation soon. Some politicians also are predicting a currency crisis. Member of Parliament Serhy Teryokhin told Interfax news agency he expects pressure to become overwhelming in the next few days.

Late last week, economists at Credit Suisse First Boston's London office warned clients of a possible hryvnia devaluation. CSFB said the central bank's failure late last year to keep the hryvnia trading within its corridor was one basis for current concern, and said that the NBU's erratic stance on intervention has done little to restore confidence.

Comparing Ukraine to Russia and Kazakhstan, Juergen Conrad, economist with Deutsche bank, said Ukraine is definitely in the worst position. However, he said that the hryvnia had been surprisingly stable, and this stability would continue in 1998. He expressed confidence that the expected widening of the exchange-rate corridor would help the National Bank of Ukraine to support the hryvnia.

On the other hand, Conrad said that "Ukraine has reached the limits of its capacity. If there is an upper limit to the growth of money and credit to the government, Ukraine is already very close to their limit," he said.