Publication: Monitor Volume: 4 Issue: 175

Ukrainian President Leonid Kuchma said during his meeting with editors of regional mass media that in the last seven years Ukraine has never been so close to a financial catastrophe, calling the situation “very dangerous.” Kuchma pointed out, however, that he is keeping the economic situation under control. He said that the current cabinet works more professionally than any of its predecessors in the last several years. (Ukrainian television, September 23).

Recent events, however, show that the economic situation may in fact be getting out of control. In the past couple of weeks the national currency, the hryvnya, lost over 30 percent of its value–threatening the survival of several dozen domestic banks. The NBU is not intervening because its currency reserves are at a dangerous level of some US$1 billion, even after receiving the first tranche of the IMF’s US$2.2 billion Extended Fund Facility. The government has turned to administrative measures to improve the financial situation. To postpone its debt payments, the cabinet–effective September 10–obliged domestic banks to convert treasury bills redeemable in 1998-1999 into bonds with maturity of up to 2003. However, later the cabinet ceded to the pressure from banks and announced that the T-bills would be exchanged on a voluntary basis (Ukrainian media, September 11-15). In the most recent development, Prime Minister Valeriy Pustovoytenko locked up fifty directors of enterprises that failed to repay foreign loans issued under the cabinet guarantees in a hall of the government building, forcing them to return the debts totaling US$743 million. Pustovoytenko warned that he would summon another fifty-odd debtors with the help of the police (Ukrainian media, September 22).

All this may cost the cabinet a resignation, because the powerful industrial and banking lobby in parliament can retaliate by joining forces with the leftist factions and Hromada to oust the cabinet (see the Monitor, September 23). So far the left has not been unanimous on this issue. The leftist speaker Oleksandr Tkachenko does not conceal his support of the current cabinet, and his deputy, communist Adam Martynyuk, has announced that he did not sign a motion in favor of the cabinet resignation (Ukrainian agencies, September 21). Kuchma, however, will most certainly be constrained to sacrifice several ministers to the leftists in order to coax the parliament–which has recently both overridden his several economic decrees and rejected his nominee for the post of head of the State Property Fund, Oleksandr Bondar–into a more cooperative mood. This will be especially important after October 15, when the legislature is to debate the government’s draft 1999 budget envisaging further cuts in social spending to comply with the IMF demands, which will be very hard for the left to swallow.–OV