Publication: Monitor Volume: 4 Issue: 14

Ukraine’s Finance Ministry sold 8.465 billion hryvnyi (about $4.5 billion) worth of treasury bills (OVGZs) last year, which represents a quantum increase over the 3.1 billion hryvnyi ($1.7 billion) sold in 1996, and the 369 million hryvnyi ($206 million) sold in 1995. (Russian agencies, January 13) Brisk OVGZ sales allowed the government to finance nearly two-thirds of Ukraine’s budget deficit — which averaged nearly 7.4 percent of GDP during the first nine months of 1997 (Ukrainian Economic Trends, TACIS, October 1997) — in a non-inflationary manner, and thus played a critical role in helping to bring inflation down to around 10 percent this year. Annual OVGZ yields fell from 59 percent in January to 22 percent in September, before rising dramatically in October during the financial squeeze that followed the collapse of the East Asian emerging markets. But even despite this fall’s interest rate spike, annual OVGZ yields (42.4 to 46.4 percent in nominal terms) at the end of the year were still lower than they had been at the start of the year (48.5 to 61.3 percent). The Finance Ministry was also able to lengthen the average OVGZ maturity in 1997 to 309 days, up from 171 days in 1996.

Progress with Ukrainian equities markets has been less impressive, mostly because the institutional framework for stock trading is incomplete. A national depository system has yet to be established, although legislation that went into effect on January 7 creates a legal framework for the establishment of an electronic depository system. According to Oleh Mozgovy, chairman of the State Committee for Securities and the Stock Market, financial problems are likely to prevent the full introduction of this system before late 1998 or early 1999. At present, Ukraine’s largest commercial banks — Privatbank, Ukraina, Aval, and Prominvestbank — are providing depository services for the 686 securities traders, 339 investment funds and companies, 379 registrars, and 35 custodians registered in Ukraine at the start of 1998.

While Ukraine’s securities markets may pale in comparison to those of neighboring Hungary and Poland, they are more developed than are those in other CIS countries, with the exception of Russia. What is more, Ukraine’s security markets boast the sophistication, transparency, and institutional development of those in Russia. In this sense, it is ironic that the two CIS countries with the most developed capital markets — Russia and Ukraine — are among the few CIS countries not to be experiencing strong economic growth.

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