Publication: Monitor Volume: 4 Issue: 186

The Ukrainian government delegation headed by Prime Minister Valeriy Pustovoytenko–which has stayed in Washington this week to secure support from international financial organizations and the United States–has turned to the IMF for additional loans to stabilize the national currency. Ukrainian Finance Minister Ihor Mityukov said that the IMF mission will arrive in Ukraine in mid-October to make a decision concerning the Ukrainian request. On arriving in Kyiv on October 9, Pustovoytenko said that he had also asked the United States to support Ukraine in seeking loans from the European Union to the tune of ECU 150 million. Prior to that, Pustovoytenko had assured the United States, the World Bank and the IMF that his government “keeps the situation under control” and will continue strict monetary policies (Ukrainian agencies, October 7-8; Fakty i kommentarii, October 8; Ukrainian television, October 9).

The Ukrainian government is having a hard time keeping the hryvnya within the fixed exchange rate of 2.5-3.5 hryvnyas/dollar. In its stabilizing efforts, the National Bank of Ukraine (NBU) has exhausted its currency reserves to the dangerous level of some US$0.8-1 billion. To further withstand the pressure of the market it urgently needs additional money, which can be obtained only from foreign sources. Otherwise unleashing inflation may cause the hryvnya and the banking system to collapse, throwing the Ukrainian economy several years behind on its path of reforms.

The domestic banking system has already lost 38 percent of its capital, and bankruptcy of several large banks seems imminent. The situation is aggravated by an apparent lack of unanimity within the Ukrainian leadership concerning the expediency of strict monetary policies. While the NBU head Viktor Yushchenko and Mityukov are prone to support the hryvnya rate to the last, influential economic advisers in the presidential administration believe that abandoning the “currency corridor” and drastically restricting external borrowing will do less harm to the economy than continuation of “old” policies. Speaking to heads of local councils in Kyiv on October 8, President Leonid Kuchma warned that foreign loans may in the long run “aggravate the situation.” He cited the NBU’s “artificial support” of the hryvnya as a cause of the current financial crisis. This sounded somewhat contradictory to what Pustovoytenko said in Washington. However, Kuchma warned that he would not sign an “unrealistic” loan and spoke against printing additional money (Ukrainian television, October 8).–OV