IS UKRAINE CATCHING THE "ASIAN FLU?"

Recent financial developments in Ukraine suggest that some of the problems currently afflicting East Asian finance and industry may also be infecting Ukraine. These problems are related to the outflow of speculative capital, which last month forced the Ukrainian authorities to raise interest rates dramatically, and which could mean more trouble for the none-too-healthy Ukrainian economy.

The most serious sign of infection came on November 28, when Ukrainian finance minister Igor Mityukov announced that Ukraine’s long-anticipated "Samurai bond" issue, expected to be floated in Japan this year, had been postponed until 1998." Had we entered the Japanese financial market with Samurai bonds last week, we would have had to do so with an issue one third smaller than we had planned, and at a higher interest rate," Mityukov told a press conference in Kyiv. (Russian agencies, November 28) In Mityukov’s view, these developments also made Ukraine’s acquisition of an international credit rating "inappropriate" at the moment. Mityukov called on the international agencies that had been assessing Ukraine’s credit rating in anticipation of the Samurai bond floatation "not to make these ratings public."

Mityukov’s statements follow the postponement of the official signing of the founding documents for the automobile joint venture between Avtozaz and the Korean Daewoo conglomerate. (Russian agencies, November 27). The postponement was apparently initiated by Daewoo. (InfoBank, November 27) While Avtozaz officials emphasized that production under the joint venture is proceeding on schedule and that Daewoo has thus far kept all of its financial promises, the correlation between the postponement and the Korean government’s request last week for a $20 billion bail out from the IMF may not have been coincidental. Korea’s economic problems are thought to have left none of its major chaebols (big business conglomerates) untouched, and Daewoo is widely rumored to have overextended itself with its ambitious overseas investment program during the past five years.

The IMF Comes to the Rescue… Sort of.