The suspension of IMF funding has also forced the Ukrainian government to nearly quadruple the value of the treasury bills to be floated domestically this year. According to an April 10 government resolution, the value of the T-bill issues slated for 1998 will rise from 3.0 to 11.5 billion hryvnya. (Eastern Economist Daily, April 10)
In theory, such sales will allow the government to finance the state budget deficit internally, without the National Bank of Ukraine having to resort to the inflationary printing of hot money. In practice, however, dumping such a large quantity of T-bills on Ukraine’s moribund debt market will at the very least drive up interest rates (the NBU’s discount rate last week stood at 41 percent) and crowd other borrowers out of the loanable funds market, thereby continuing to depress investment. Because Ukraine’s parastatal banks are the major purchasers of Ukrainian T-bills, the liquidity they need to purchase these bonds may ultimately have to be provided by the NBU. This would in all likelihood lead to inflationary increases in the money supply. In either case, prospects for a strong economic recovery could become that much more remote.