UKRAINE INTRODUCES EXCHANGE-RATE CORRIDOR.

The National Bank of Ukraine (NBU) and the Ministry of Economy introduced Ukraine’s long-awaited exchange-rate corridor on September 1. (Unian, Russian agencies, September 1). Under this exchange-rate regime, the hryvnya is to fluctuate between 1.7 and 1.9 hryvnya to the dollar until the end of the year.

The new exchange rate regime caps a four-fold series of successes for the NBU in the year following the September 1996 introduction of the hryvnya. First, the NBU has kept the hryvnya stable against the dollar: the hryvnya was introduced last September at a rate of $1 = 1.8, and it is currently trading at a rate of $1 = 1.86. Second, the NBU’s policies have played a critical role in bringing annual inflation rates down from 182 percent in 1995 to 50 percent last year and below 10 percent for 1997. Third, the NBU’s foreign exchange reserves have more than doubled, to $5.4 billion, since the hryvnya’s introduction last September. Finally, the corridor’s implementation is one of the conditions for the release of $542 million in IMF financial support pledged to Ukraine at the end of August.

The term "corridor" is actually something of a misnomer since, in contrast to the Russian Central Bank’s "ruble corridor," the NBU has not committed itself to support a forecast trend in the hryvnya’s value. Instead, the Ukrainian corridor is really a pegged exchange-rate regime, in which the NBU has pledged to keep the hryvnya within a band of 1.7-1.9 per dollar. Still, whatever it’s called, the corridor’s introduction is a key part of the continuing success Ukraine has recorded with financial stabilization this year. When and whether financial stabilization will be translated into increases in production remains to be seen.

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