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Thursday, January 15, 2009

Industrial Output Continues Its Decline In December

Ukraine’s industrial output continued its rapid decline in December, falling for a fifth consecutive month, led by steel, chemical and machine building. Output tumbled an annual 26.6 percent, following a 28.6 year on year decline in November, and a 19.8% one in October.

December steel production slumped 42.7 percent, chemical output fell 40 percent, and machine building dropped 37.1 percent. The annual contraction rate slowed slightly in December, but this may be a partly a statistical artefact due to what is know as the "low base effect" in December 2007, however output was up by 3.2% in December over November, which may be a result of the sharp drop in the value of the hryvnia. I would be surprised if we didn't see further falls in output, but we will need to wait and see what happens in the coming months.

For a full analysis of what is happening in Ukraine, see my As The Politicians Battle It Out Ukraine's Economy Tunnels South In Search Of Australia


Anonymous said...

With increasing gaz prices in this year, Ukraine will face an additional "burden" for its heavy energy depending industry. However, due to the linkage between oil prices and gaz prices, gaz could become much cheaper in the next time.

In any case, this source of Energy which helped Ukraine to get comparative advantages as against Russia due to the low price, will not become cheaper.

Anonymous said...

The average wages in Ukraine rose by 9.8% in December 2008 to UAH 2,001, whereas in November it was UAH 1,823, in October UAH 1,917, and in September UAH 1,916, the State Statistics Committee said on Friday.

According to the committee, the average wages in 2008 grew by 33.7% year-on-year, to UAH 1,806.

The highest level of wages last year was registered in Kyiv, where the average monthly wage was UAH 3,074, and the lowest level of wages was in Ternopil region (UAH 1,313).

In December compared to November 2008, the level of salaries in the state sector rose by 19.1%, in the sphere of real estate operations, rent and engineering by 15.3%, in the healthcare sphere by 11.5%, at transport and communications enterprises by 10.9%, in education by 10.3%, in culture and sports by 9.1%, in the sphere of financial activities and in the industry sector by 6.4%, and in construction by 4.1%.

The level of wages in agriculture slid by 0.4% in 2008.

According to the committee, the total sum of delayed wages in Ukraine as of January 1, 2009, fell by 35.3% compared to December 1, 2008, to UAH 1.123 billion, however, it grew by 68% compared to January 1, 2008.

Typically, they had the biggest increase in the state sector....

Still wondering, why wages were increasing. Is there any explanation?

In other articles, one reads that people were fired and re-hired with much lower salary, teacher don't get full salary and so on...

Edward Hugh said...


"Still wondering, why wages were increasing. Is there any explanation?"

Well, I think you raise an inetersting question. But first off, the currency has collapsed - not just a smallish devaluation. Everything here is out of proportion. So really with this degree of devaluation you would expect only to be able to keep inflation under control slowly. That is, it is quite different from Latvia where you try to keep the currency steady and drop wages 15%. You drop the currency, and should compenate wages to some extent for inflation which is still very high. The trick is to steadily bring it under control - of course it should never have been let get where it is.

But there may be another point here. Namely this one:

Public sector employees in Transcarpathia, Ukraine will receive only half of their January salary, Hungarian newswire MTI reported on Tuesday. The central state budget transferred only 52% of the January wage of several thousand public sector employees there. The macroeconomic situation in Ukraine does not bode well for Hungary’s OTP, either. Ukraine is to cut regular earnings for public sector employees by at least 8% in 2009. Moreover, they will not receive a part of their basic salary, loyalty payment and bonuses. Rescheduling of pension transfers is expected as of February. What seems certain at the moment is that the retired will receive their money last.

That is, they can - due to political tussles in the government - be notionally giving people the salaries, but there may be no money in the bank accounts to pay them with. This IS very reminiscent of Argentina. I mean the government ended up with scrip money to pay employees in regional administrations etc.

Anonymous said...

Well, you are right, given the absolute high level of inflation in Ukraine, even an increase of salaries by 10% is obviously already a quite massive real income loss.

So considering this, it is consistend with the theory.

I am wondering, if a Balance of Payment Crisis is possible in the near future, after Krugman's model.

And that salaries are on paper high, but in reality not (especially state concerning), is clear withouth any explanation.

Reading a bit the Kyiv Post in the last days, one can see the dramatic situation of public finances: City Administration, State administration, everybody is trying to increase any kind of taxes and to introduce a dozens more - showing the massive not existence of wealth.

Anonymous said...

Ukraine is almost considered to default in the next time, looking at the CDS-Spreads and the following list: http://verlorenegeneration.wordpress.com/landerisiken-im-uberblick/

But as it is a probability of rater 99.9% than 100%, there is still some place to go.

By the way, after a state became bankrupt, what exactly happens? For sure is that it will exist further and that some will never see their money again. But what is beyond that?

Anonymous said...

LONDON, Jan 7 (Reuters) - As a gas supply row with Russia rages, some market participants are refusing to sell protection for Ukraine's sovereign debt without upfront payment -- reflecting mounting concerns over its debt and currency.
On top of worsening relations with its giant neighbour, Ukraine has also suffered from a collapse in its steel, chemical and construction sectors, a slump in its currency and mounting banking problems leading to a deepening recession.
Russian gas giant Gazprom cut off gas supplies to Ukraine on New Year's Day in a row over alleged unpaid bills and pricing, affecting supplies to much of the European Union.
"Ukraine retains its basket case status, with the ongoing gas dispute and potential higher costs doing little to encourage the deflated interest appetite," said Commerzbank emerging markets trader Paul Timmons.
The cost of Ukrainian government debt protection in the credit default swaps market has soared from around 400 basis points in August, shortly before the Russia-Georgia war began spooking investors, to more than 3,000 in recent weeks.
That implies it would cost an investor $3 million a year over five years to protect only $10 million of debt.
However, specialist CDS monitor CMA DataVision said on Wednesday some market participants were now demanding an upfront payment with a midpoint of 54.75 percent.
That means a buyer would now need to pay $5.475 million upfront plus $500,000 a year over five years.
Iceland's five-year CDS also switched to being quoted on an upfront basis shortly before the country's currency, economy and banking systems collapsed completely last year.
Ratings agency Fitch says Ukraine had $13.5 billion outstanding debt in October, of which $11.5 billion was foreign currency debt including state energy firm Naftogaz.
Ukrainian sovereign debt spreads widened 148 basis points to 2,875 bps over US Treasuries on the JP Morgan EMBI+ index <11EMJ> on Wednesday, denoting a rising perception of risk on a day when broader emerging sovereign debt spreads <11EMJ> actually narrowed 3 bps.
The yield on Ukraine's $1 billion Eurobond due 2016 has exploded out from less than 7 percent at the beginning of 2008 -- when Ukraine was touted as a promising market -- to up to 25 percent in recent weeks.
State gas firm Naftogaz was in technical default on a $500 million Eurobond after failing to deliver 2007 accounts but finally delivered them shortly before the New Year.
Ukraine had said it was aiming for new Eurobonds this year but its crisis is seen making that impossible. Emerging borrowers Colombia, Brazil, Turkey and the Philippines have all announced new issues this week as global market conditions improved, but Ukraine would probably be seen too dangerous.
The hryvnia currency was Europe's worst performing after Iceland last year and at one stage in December had lost half its value before the government imposed capital controls and moved to intervene.
It was shown flat and barely traded at 8.3 to the dollar on the Reuters conversational dealing system on Wednesday, with local markets closed for Orthodox Christmas.
Ukraine's foreign currency reserves fell in December to $31.54 billion from $32.7 billion the previous month, central bank data showed on Tuesday. That put them only $0.3 billion higher than the International Monetary Fund (IMF) requirements set quarterly after the IMF agreed to lend Ukraine $16.4 billion in November.
Ukrainian currency forwards put the currency at 9.05 to the dollar in a month, 11.4 in six months and 13.3 in a year -- but emerging foreign exchange strategist John Harrison at Dresdner Kleinwort said they were barely traded.
"But it does show that everyone thinks the hryvnia is probably going to weaken further," he said. (Editing by Andy Bruce)

Anonymous said...

Jan. 19 (Bloomberg) — Four years after Ukraine embraced the West with the election of President Viktor Yushchenko in the Orange Revolution, the former Soviet nation’s economy is collapsing and investors expect the country to default.

Even with the International Monetary Fund’s $16.5 billion bailout, Ukraine’s finances are deteriorating as the country battles with Russia over natural gas prices and the cost of steel, its biggest export, sinks.

Yields on Ukraine’s $105 billion of government and company bonds are the highest of any country with dollar-denominated debt except Ecuador, which defaulted in December. The currency, the hryvnia, weakened 40 percent in the past 12 months against the dollar. The benchmark stock index lost 85 percent, the biggest drop in the world after Iceland, data compiled by Bloomberg show.

“The market is telling us there is a high probability of a default,” said Tom Fallon, head of emerging-markets at La Francaise des Placements in Paris, which manages $11 billion and sold its Ukrainian holdings six months ago. “It’s an advantage that the country is committed to policy measures that the IMF is prepared to back, but that is no guarantee it won’t default.”

The gap in yields between Ukraine’s bonds and Treasuries tripled in the past four months to 23 percentage points. The country’s bonds yield 11.5 percentage points more than debt sold by Argentina, which defaulted in 2001 and has yet to compensate all holders, according to JPMorgan Chase & Co. data.

Gas Dispute

Ukraine is getting battered after European steel prices plummeted 56 percent since August, according to data from Metal Bulletin. Industrial production fell 48.8 percent in November, the steepest decline in Europe, as the global economic slowdown cut international demand.

The country’s dispute with Russia over natural gas prices disrupted supplies across Europe and will probably increase fuel costs for Ukraine, slowing industry, analysts led by Vienna-based Martin Blum at UniCredit SpA wrote in a research note this month.

Russian Prime Minister Vladimir Putin and his Ukrainian counterpart, Yulia Timoshenko, are scheduled to sign the terms of an agreement today in Moscow in which Ukraine will pay higher European prices for Russian gas from 2010, after a 20 percent discount this year. In return, 2009 transit fees for Russia will remain at last year’s level. The European Union said it will reserve judgment on the deal until the resumption of flows to the 27-nation bloc after a halt of almost two weeks.

“Russia does have a bit of an upper hand, but an excessively weak Ukraine would not be a benefit to Moscow either,” said Ivailo Vesselinov, a senior economist at Dresdner Kleinwort in London. “The Kremlin has to balance keeping Ukraine stable so that does not spill over into a chaotic break-up, and preventing a move away from Russia politically.”

Divided Nation

The nation’s 46 million people are 45 percent ethnic Russians and 55 percent ethnic Ukrainians. While the U.S. is supporting membership to the North Atlantic Treaty Organization, Russia has warned the move would break the country into two states and prompt Moscow to aim missiles at Ukraine.

A feud between Yushchenko and Timoshenko has made matters worse as the collapse of their coalition government in September hampered policies to reassure investors. The central bank seized Prominvestbank, Ukraine’s sixth-biggest lender by assets, in October.

The crisis led the IMF to provide $4.5 billion of emergency loans in November. Conditions for the credit include moving toward a flexible exchange rate, tackling inflation and running a balanced budget even though Ukraine’s parliament approved a 2009 deficit of 2.96 percent of gross national product. The government will partly cover the shortfall by selling bonds, according to the plan reached last month. Ukraine’s inflation rate is the highest in Europe at 22.3 percent.

IMF Mission

An IMF mission is scheduled to visit Kiev this month before it provides a second payment in February.

“Without rapid correction, this could undermine the outlook for the second tranche,” said Ali Al-Eyd, an economist at Citigroup Inc. in London.

Ukraine’s economy, which expanded at an average annual rate of 7 percent since 2000, grew 2.1 percent last year. Gross domestic product may shrink 5 percent this year, Oleksandr Shlapak, the president’s deputy chief of staff said in November.

The slump coupled with the hryvnia’s decline increased concern that the government and companies will default after a fourfold jump in foreign debt since January 2004, according to data on the central bank’s Web site.

Maturing Debt

Citigroup, Credit Suisse Group AG and UBS AG arranged more than $8 billion of bond sales for the Ukrainian government since 2004, according to data compiled by Bloomberg. The country has to repay $1.4 billion of maturing foreign debt this year, according to Citigroup.

“I doubt Ukraine will default on the public debt, but at these sorts of high bond spreads the market doesn’t see it that way,” said Paul McNamara, who helps manage $1.2 billion of emerging-market debt at Augustus Asset Managers Ltd. in London, including Ukraine government and City of Kiev securities.

Investors demand higher yields from Ukraine than the average 18.1 percent yield on Argentina’s debt in October 2001, just before the Latin American nation defaulted. Ukraine’s yields are more than double the 10.8 percent Russian yields in the month before it defaulted in August 1998.

While a default by Ukraine is “not impossible,” it is not “imminent,” said Dmitry Sentchoukov, an emerging-market strategist at Dresdner in London.

Default Swaps

Ukraine’s yield spread narrowed to 23.67 percentage points from a record 27.38 percentage points on Dec. 30, JPMorgan data show. Ecuador, which stopped making payments in December on $3.9 billion of debt, has a yield spread of 36.7 percentage points.

AKIB UkrSibbank, the Ukrainian unit of BNP Paribas SA, sold $200 million of bonds in July 2007 at face value to yield 7.375 percent. The securities are now quoted at 57 cents on the dollar with a yield of 51 percent.

The cost to protect bonds sold by Ukraine against default jumped more than 12-fold in the past year to about 3,450 basis points, the second-highest worldwide after Ecuador, according to London-based CMA Datavision prices for credit-default swaps.

The contracts, conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point is worth $1,000 on a credit- default swap protecting $10 million of debt.

“There are definitely going to be credit events,” said Dresdner’s Vesselinov. “And we will expect a lot of corporate defaults.”

Anonymous said...

Finance Minister of Ukraine in Kommersant:

Viktor Pinsenyk predicts the non-compliance of the state budget

Der Finanzminister Wiktor Pinsenyk hat zugegeben, dass das Staatsbudget 2009 nicht eingehalten wird – das Geld reicht kaum für die Sozialzahlungen. The Finance Minister Viktor Pinsenyk has admitted that the 2009 state budget is met - barely enough money for social payments. Dies besagt der gestern veröffentlichte Brief von Wiktor Pinsenyk, der an die Ministerpräsidentin Julia Timoschenko gerichtet wurde. That means the letter published yesterday by Wiktor Pinsenyk, the President addressed to the Minister Yulia Tymoshenko has been issued. Auf diese Weise, sind die Bedienung der Staatsschulden und absolut alle Hauptausgaben und Staatsprogramme in Höhe von 85 Mrd. Grywnja in Frage gestellt, mit deren Hilfe die ukrainische Regierung gehofft hatte, die Wirtschaftskrise zu überwinden. In this way, the operation of government and absolutely all of the major spending and government programs in the amount of 85 billion Grywnja in jeopardy, with whose help the Ukrainian government had hoped, the economic crisis to be overcome. Bei BJuT (Block Julia Timoschenko) findet diese Ansicht keine Unterstützung und man ist dagegen, die übermäßigen Budgetausgaben zu reduzieren. In bjut (Yulia Tymoshenko bloc) will not support this view and it is opposed to the excessive budget to reduce spending. Die vorliegende Situation zeugt vom hohen Risiko des “Gelddruckens” , so die Experten. The present situation testifies to the high risk of "printing money", said the experts.
Antirekordwerte Anti records

Gestern hat das Internetblatt Ekonomicheska Prawda den Brief (#31-03000-3-10/3 vom 6. Januar) vom Finanzminister Wiktor Pinsenyk an die Ministerpräsidentin Julia Timoschenko und das Ministerkabinett veröffentlicht. Yesterday, the Internet sheet Ekonomicheska Prawda the letter (# 31-03000-3-10 / 3, 6 January) by the Finance Minister Viktor Pinsenyk to the Prime Minister Yuliya Tymoshenko, the Cabinet of Ministers and published. In diesem Dokument analysiert Herr Pinsenyk auf 24 Seiten die „kritische Entwicklung der Wirtschaftssituation in der Ukraine und das Budget 2009“ . This document analyzes Mr. Pinsenyk at 24 pages the critical development of the economic situation in Ukraine and the Budget 2009 ". Herr Pinsenyk stellt fest, dass die Wirtschaftssituation in der Ukraine die schlimmste in der ganzen Welt ist. Mr. Pinsenyk notes that the economic situation in Ukraine, the worst in the world. Er erinnert uns daran, dass er uns bereits im Oktober vor dem abrupten BIP -und Industriewachstumsrückgang gewarnt hat. He reminds us that he gave us in October before the abrupt GDP growth and industrial decline has warned. So hat der Minister erwartet, dass der BIP -Rückgang im November 5-7% betragen wird. „Meine Vorhersage erwies sich als zu optimistisch. Thus, the Minister expects that the GDP decline in November will amount to 5-7%. "My prediction proved to be too optimistic. Das BIP ging im November um 14,4% zurück. The GDP fell in November to 14.4% back. Die Zahlen der Wirtschaftsrezession im ersten Quartal werden viel schlimmer sein, als diejenigen, die ich während der Kabinettsitzung bereits geschildert habe (minus 7-10%).“ Der Minister glaubt ebenso nicht daran, dass das BIP 2009 um 0,4% wachsen wird, denn dafür sollte das Wirtschaftswachstum im November dieses Jahres 17,3% betragen. The figures of the economic recession in the first quarter will be much worse than those which I found during the cabinet meeting had already written (minus 7-10%). "The minister just does not believe that the GDP in 2009 to 0.4% will grow because this should be the economic growth in November of this year amounted to 17.3%. Seiner Ansicht nach wäre sogar die Erwartung vom Rückgang um 5% innerhalb dieses Jahres zu optimistisch. „Ein Drittel der Industrie der Ukraine ist verschwunden! In his view, the very expectation of decline by 5% within this year too optimistic. "A third of the industry of Ukraine has disappeared! So einen umfangreichen Rückgang der Industrieproduktion (um 28,6% im November) hat es in keinem Jahr in der Zeit der Unabhängigkeit der Ukraine gegeben“ – wolle er gerechnet haben. To a large decline in industrial production (by 28.6% in November) it has in any given year in the time of independence of Ukraine, where "- he would have expected.
Dabei haben Ende 2008 bereits 308 regionale Budgets mit der Abnahme der Steuereinnahmen auf die Krise reagiert. The end of 2008 have already been 308 regional budgets with the decrease in tax revenues responded to the crisis. Und die meisten Regionalbudgets stießen auf Schwierigkeiten bei der Lohnauszahlung im Sozialbereich. And most of the regional budgets have met difficulties in paying wages in the social field. Im Januar werden die Lohnfondseinnahmen im Vergleich zum letzten Jahr wesentlich sinken, so der Finanzminister. „Im Industriebereich lagen die Steuereinkünfte von physischen Personen im November fast auf dem Niveau vom Februar, wobei die Durchschnittsrente im Laufe des Jahres 2008 um 49% und die Gehälter der Staatsangestellten um 30,2% gewachsen sind“ . In January, the wage fund revenue compared to last year significantly reduced, as the minister of finance. "In the industrial sector, the income tax of physical persons in November to almost the level of February, while the average pension in 2008 by 49% and the salaries of state employees to 30.2% growth. "

Der Wirtschaftsrückgang und als Folge der Rückgang der Steuereinnahmen machen es nach der Meinung vom Herrn Pinsenyk unmöglich, die Ausgaben vom Gesamtfonds des konsolidierten Budgets (dh das staatliche und regionale Budgets zusammen) in Höhe von 84,8 Mrd. Grywnja zu finanzieren. The economic downturn and as a consequence of the decline in tax revenues make it the opinion of the Lord Pinsenyk impossible, to exclude from the total fund of the consolidated budget (ie the state and regional budgets combined) in the amount of 84.8 billion Grywnja finance. Nach seinen Berechnungen werden die realen Einnahmen vom Gesamtfonds des konsolidierten Budgets 225,3 Mrd. Grywnja statt der erwarteten 310 Mrd. Grywnja betragen, was nur 0,7 Mrd. Grywnja mehr als 2008 ist. According to his calculations, the real revenue from the total fund of the consolidated budget, 225.3 billion Grywnja instead of the expected 310 billion Grywnja, representing only 0.7 billion Grywnja more than 2008 is.

Das bedeutet, dass die Budgeteinnahmen – 225,9 Mrd. Grywnja – kaum für die geschützten Sozialausgabenposten (Löhne, Renten, Stipendien, Wissenschaft, Medizin, Hochschulbildung, Armee, Entschädigung für die Energieressourcen, Abwicklung der Staatsschuld) ausreichen werden. This means that the budget revenues - 225.9 billion Grywnja - hardly the protected social expenditure (wages, pensions, scholarships, science, medicine, higher education, army, compensation for energy resources, management of government debt) will suffice. Allein für die Tilgung der externen Schulden werden 17,2 Mrd. Grywnja sowie der internen – 14,5 Mrd. Grywnja benötigt. Solo for the repayment of external debt is 17.2 billion Grywnja and internal - 14.5 billion Grywnja needed. Diese Ausgaben betragen 99% der realen Budgetkosten, wobei diese 2008 79% betrugen. These expenses amount to 99% of the actual budget costs, which amounted to 2008 79%. Unter Berücksichtigung des im Budget eingeplanten Lohnwachstums und der nicht gedeckten Rentenfondsdefizite in Höhe von 4,2 Mrd. Grywnja werden die Ausgaben „die realen Budgetmöglichkeiten überschreiten“ . Taking account of the budget scheduled wage growth and non-covered pension deficits amounting to 4.2 billion Grywnja are spending "real opportunities exceed the budget."

Für die nicht geschützten Ausgabenposten – Kapitalprogramme, Bau, Forschung, Kreditgewährung, Medikamentenbeschaffung – wird kein Geld zur Verfügung stehent. For the non-protected items of expenditure - capital programs, construction, research, credit, drug procurement - will be no money available stehent. Das führt zur Rezession in den Wirtschaftsbereichen, die erwartete Staatsaufträge nicht erhalten. This leads to a recession in the sectors of the economy, the expected state orders not received. Dabei beträgt das Budgetdefizit 31,1 Mrd. Grywnja. „Ländern mit solchen Budgetdefiziten und einem solchen Staatsanleihenumfang werden keine Kredite gewährt“ , schrieb der Minister. Here, the budget deficit 31.1 billion Grywnja. "Countries with such budget deficits and government bonds such a scale, no credit," wrote the minister.
Die Empfehlungen sind nicht für alle The recommendations are not for everyone

Wiktor Pinsenyk ist sicher sicher, dass die Ukraine mit einem solchem Budget nicht überleben wird. Viktor Pinsenyk is sure that Ukraine with such a budget will not survive. Deswegen hat der Minister dem Ministerkabinett und dem Obersten Rat vorgeschlagen, den Lohnfonds für die Behörden (bzw. für Parlament- und Regierungsangestellten) nicht um die geplanten 10% sondern um 20% und die Ministerlöhne sogar um 40-50% zu reduzieren. That is why the Minister of the Cabinet of Ministers and the Supreme Council proposed that the wage fund for the authorities (or for parliament and government employees), not to the planned 10% to 20% but the ministers and even wages by 40-50% reduction. Auch die Privilegien der Beamten und Abgeordneten sollten abgeschafft werden. Also, the privileges of officials and legislators should be abolished. Gleichzeitig ist es notwendig, die Kommunaltarife für „wohlhabende Bürger“ zu erhöhen und Kindern aus Familien mit schwachen sozialen Verhältnissen kostenlose Lehrbücher und Essen in den Schulen sowie die Möglichkeit der unentgeltlichen Hochschulbildung zur Verfügung zu stellen. At the same time, it is necessary for local tariffs for "wealthy people" should be increased and children from families with poor social conditions, free textbooks and meals in schools and the possibility of free higher education available. In den medizinischen Einrichtungen müssen kostenpflichtige Dienstleistungen eingeführt werden, verlangt der Minister. „Das Land und die Bürger sind in Gefahr, so sein Fazit. In the medical facilities must be paid services, requires the Minister. "The country and the citizens are in danger, so he concluded. Es gibt einen Ausweg aus der komplizierten Situation, aber die Zeit ist sehr knapp. There is a way out of the complicated situation, but time is very scarce. In einem oder zwei Monaten, falls keine adäquaten Maßnahmen eingeleitet werden, wird die Situation das Land regieren.“ In a month or two, if no adequate measures are taken, the situation the country. "

Der Kabinettminister Peter Krupko glaubte nicht, dass der Brief existiert, und sagte, dass ein weiterer Versuch ist, Wiktor Pinsenyk und Julija Timoschenko zu entzweien. The Cabinet Minister Peter Krupko did not believe that the letter exists, and said that another attempt is Pinsenyk Viktor and Yulia Tymoshenko to divide.

Die Informationsquellen des “ Kommersant-Ukraine “ haben bestätigt, dass der Brief beim Sekretariat des Ministerkabinetts eingetroffen ist und dass der Brief nicht als offizielle, sondern als private Korrespondenz gilt. The sources of Kommersant-Ukraine "have confirmed that the letter from the secretariat of the Cabinet of Ministers has been received and that the letter was not official, but as a private correspondence applies. Über die Existenz des Briefes hat der Ex-Finanzminister Nikolaj Asarow bei einem Fernsehsender letzten Freitag (Kanal Inter “Swoboda Slowa”) berichtet. About the existence of the letter, the ex-Finance Minister Nikolai Asarow at a television station last Friday (Channel Inter "Swoboda Slova") have been reported.

Einer der fungierenden Minister hat sich darüber empört, dass Herr Pinsenyk die Form der internen Korrespondenz mit der Regierungschefin gewählt hat, anstatt alles öffentlich in einer Sitzung des Ministerkabinetts erörtert zu haben. „Er malt irgendwelche seiner schrecklichen Bilder. One of the acting Minister has also outraged that Mr. Pinsenyk the shape of the internal correspondence with the prime minister has chosen, instead of everything in a public meeting of the Cabinet of Ministers discusses it. "He paints some of his horrific images. Wo war er vor einem Jahr? Where was he a year ago? Er vertritt nur einen Standpunkt: den Gürtel enger zu schnallen, den Atem anzuhalten und gar nichts zu machen. He represents only one position: the belt tighter, the breath and nothing to do. So haben wir wegen der Einstellung des Finanzministers 2008 schlechter agiert“ , sagte der Gesprächspartner des “ Kommersant-Ukraine “. So we have because of the attitude of the Minister of Finance 2008 bad acts, "the interlocutors of Kommersant-Ukraine." Eine Informationsquelle des “ Kommersant-Ukraine “ im Finanzministerium hat mitgeteilt, dass infolge der Einsparungen die stellvertretenden Minister wahrscheinlich keinen Lohn erhalten. An information source of "Kommersant-Ukraine" in the Ministry of Finance has indicated that the savings resulting from the deputy minister likely will receive no reward. Wiktor Pinsenyk hat auf die Anrufe des “ Kommersant-Ukraine “ nicht geantwortet. Viktor Pinsenyk has responded to the calls of "Kommersant-Ukraine" is not answered. Die öffentlichen Auseinandersetzungen zwischen Herrn Pinsenyk und Frau Timoschenko tauchten bereits im Herbst auf (siehe “ Kommersant-Ukraine “ vom 11. Nov. 2008). The public dispute between Mr. and Mrs. Timoshenko Pinsenyk already appeared in the fall (see "Kommersant-Ukraine" dated 11 Nov. 2008).

Man kann behaupten, dass die Information, die der Brief enthält, schon längst Präsident Juschtschenko bekannt ist. One can argue that the information that the letter contains, President Yushchenko has long been known. Mitte Dezember beim Treffen des Präsidenten mit den Mitgliedern der Fraktion „Unsere Ukraine – Volksselbstverteidigung“ konnte der Staatschef den Abgeordneten einen Teil der ihm zur Verfügung gestellten Angaben mitteilen. In mid-December at the meeting of the President with the members of the group "Our Ukraine - People's Self-Defense", the head of state, a part of the Members who made available data indicate.

- “Der Präsident hat seinen Standpunkt hinsichtlich der Wirtschaftsfragen eindeutig dargestellt. - "The President has explained his position regarding the economic issues explicit. Es wurden die Fehler diskutiert, welche die Regierung während der Budgetausarbeitung begangen hat, sowie der Bedarf an Verbesserungsmaßnahmen im Bereich der Makrowirtschaft und der Finanzen behandelt,” teilte dem “ Kommersant-Ukraine “ nach dem Treffen der damalige stellvertretende Vorsitzende des Sekretariats vom Präsidenten Petro Olijnyk mit. There were discussed the mistakes which the government during the budget preparation has committed, and the need for improvement in the macro economy and finance deals, "told" Kommersant-Ukraine "after meeting the then vice-chairman of the Secretariat of President Petro Olijnyk with. Und einer der Abgeordneten hat damals beim Verlassen der Sitzung dem “ Kommersant-Ukraine “ gegenüber zugegeben: „Der Präsident machte eine katastrophale Prognose. And one of the deputies at the time when leaving the meeting the "Kommersant-Ukraine" towards admitted: "The president made a disastrous prognosis. Ich habe dies nicht erwartet“ . I did not expect this. "
Nein zur Zwangsverwaltung No to forced administration

„Bereits in der ersten Arbeitswoche des Parlaments im Januar muss man neue Gesetzpakete beschließen und eine Woche danach ein qualitativ neues, ehrliches und ausgewogenes Budget 2009 vorbereiten“ , betonte Herr Pinsenyk in seinem Brief. "Already in the first week of Parliament in January you have to decide on new law packages and a week after a qualitatively new, honest and balanced budget in 2009 to prepare," said Mr Pinsenyk in his letter. Laut der offiziellen Information des Obersten Rates haben die Abgeordneten im Laufe der ersten und einzigen Plenarwoche 2009 23 Gesetze und genau so viele Verordnungen verabschiedet. According to the official information of the Supreme Council, the deputies during the first and only session 2009 23 laws and just as many regulations have been adopted. Unter den verabschiedeten Dokumenten gibt es kein einziges, um dessen Notwendigkeit es sich im Brief vom Herrn Pinsenyk handelt. Among the documents adopted there is no single, which need to be in the letter from the Lord Pinsenyk acts. Wenn man beide Augen zudrückt, kann man den Anti-Krisen-Dokumenten die vom Obersten Rat verabschiedeten Änderungen zu den Gesetzen „Über Konzessionen für den Bau und die Benutzung der Autobahnen“ und „Über die Förderung der sozialen Herausbildung und Entwicklung der Jugend in der Ukraine“ zurechnen. If both eyes zudrückt, can the anti-crisis documents from the Supreme Council adopted amendments to the law "On concessions for the construction and use of the highways" and "Through the promotion of social formation and development of youth in Ukraine "attribute. Dafür haben die Abgeordneten den Prozess des Beschlusses des Gesetzes zu den provisorischen Untersuchungskommissionen abgeschlossen, in dem das Amtsenthebungsverfahren des Präsidenten beschrieben wurde. Therefore, the Members of the decision process of the law on temporary investigation commissions completed in the impeachment of the President has been described.

Bei BJuT hält man die Budgetrevision für nicht aktuell. In bjut keep the budget revision to be out of date. Nach der Meinung der Abgeordneten Natalja Korolewskaja muss man in erster Linie die Gesetzentwürfe verabschieden, welche Investitionen ins Land ziehen und das Bewilligungssystem vereinfachen. „Wenn der Finanzminister nicht fähig ist, die planmäßigen Aufgaben zu erfüllen, dann sollte er mindestens verstehen, dass es in Krisenzeiten nie leicht ist und keine Probleme mit einer Denkschrift zu lösen sind“ , sagte sie. According to the opinion of MPs Natalya Korolewskaja must first adopt the draft law, which investments into the country, and the grant system simpler. "When the finance minister is not capable of, the scheduled tasks to perform, then he should at least understand that in times of crisis is never easy and no problems with a memorandum to be solved, "she said.

Der Meinung von Experten nach, würden die Vorschläge des Finanzminister den Budgetmangel von 85 Mrd. Grywnja nicht beheben. The opinion of experts, would the proposals of the Minister of Finance the budget shortage of 85 billion Grywnja not fix. Außerdem, wie der Direktor des Zentrums „CASE-Ukraine“ Dmitrij Bojarchuk behauptet, gibt es in der Ukraine nicht so viele reiche Menschen, bei denen man einsparen könnte. „Das alles sollte man vor der Krise machen, als die Leute noch nicht so sensibel dafür waren, dass man ihnen noch einen Teil des Einkommens wegnehmen wird“ , sagt der Analyst. Moreover, as the Director of the Center, "CASE-Ukraine" Dmitry Bojarchuk claims that exist in Ukraine, not so many rich people, where you could save. "All of you should do before the crisis when the people were not as sensitive have been that they are still a part of their income taken away from, "says the analyst. Seiner Ansicht nach, zeugen die Probleme mit dem Budget und dem Rücktritt des Chefs der Nationalbank der Ukraine Wladimir Stelmach lediglich von dem Wunsch Zusatzemissionen (an Grywnja) durchzuführen. „Das ist kein Ausweg, es ist aber das, was Julia Wladimirowna (Timoschenko) darunter versteht“ , meint Herr Bojartschuk. In his view, see the problems with the budget and the resignation of the Chief of the National Bank of Ukraine Vladimir Stelmach only by the desire additional emissions (to Grywnja) above. "This is not a resort, it is but what Julia Vladimirovna (Timoshenko) including understands, "says Mr. Bojartschuk.

Федоренко said...

The former Soviet territory always had two troubles: roads and fools. But life goes on, and the list of troubles gets certain national colour. It seems, that in Ukraine now it is necessary to be afraid not only of "fools" and "roads", but “ crisis struggle” and “Euro 2012 preparation”.

Anonymous said...

he government is rushing to shore up confidence in the nation’s banks, battered by the same excessive lending that triggered the global financial crisis

Ukraine’s leadership is rushing to shore up confidence in the nation’s banks, heavily battered by the same excessive lending and bad borrowing that triggered the global financial crisis.

Immediately, $3.2 billion in government money is needed to recapitalize the nation’s 17 largest banks, according to a recent audit by the National Bank of Ukraine. This amount would follow emergency loans worth billions of United States dollars provided by the central bank after the the crisis broke out last autumn. Its still unclear what the cost to taxpayers will be.

According to the NBU, some $1.9 billion is needed for foreign-owned banks, which have been among the most aggressive lenders in recent years. They have been squeezed hardest by a sliding currency, plummeting asset values and recession.

The nation’s banks have already lost the trust of 70 percent of citizens, according to a recent survey.

There are also calls for emergency cash injections to save the rest of Ukraine’s 170-plus banks, including medium-sized banks under pressure in the wake of the global financial crisis. For now, however, no guarantees have been put in place for most banks or for citizens who are at risk of losing savings above the Hr 150,000 limit guaranteed by the state.

The government’s ability to help banks is in question. Ukraine’s economy will be in recession this year, with gross domestic product expected to fall as much as 5 percent. Tax revenues are expected to be weak, complicating the government’s efforts to have a balanced budget required by the International Monetary Fund in exchange for a $16.5 billion loan. Besides the IMF loan, Prime Minister Yulia Tymoshenko this week announced that Ukraine could secure additional loans from two other nations, but did not name them.

Citizens, who face restrictions on withdrawing their savings and difficulty paying loans, will be watching anxiously.

“The situation is critical. At issue for the most vulnerable citizens is survival,” said Oleksandr Volosov, deputy chairman of the All-Ukrainian Association to Defend the Rights of Borrowers and Depositors, an organization established early this year. “The risks should be evenly balanced between citizens and banks.”

Emergency measures adopted by the central bank froze deposits last fall. Citizens with savings held in hryvnia were not able to exchange it into a foreign currency during a period when the national currency lost 40 percent of its value. The weaker hryvnia is also hurting people who borrowed in dollars but get paid in hryvnias. They risk losing their homes, cars and other assets if they default on the loans.

There are also deep concerns about the government’s ability to make good on its deposit guarantees.

“Today the deposits guarantee fund only has around Hr 3 billion, about the amount of assets of just one medium-sized bank,” said Oleksandr Zholud, an economist with the Kyiv-based International Center for Policy Studies. In total, banks hold some Hr 150 billion in citizens’ deposits. The central bank is dragging its feet and “does not want to start the liquidation procedure of banks that are not performing obligations because it will lead to deposits guarantee fund exhaustion, and this, in turn, can cause another wave of panic,” Zholud added.

The situation is a stark contrast from a banking system that exhibited double-digit growth in recent years. The boom was fueled by easy access to loans from foreign banks. Local banks, in turn, loaned billions of dollars to Ukrainian citizens and corporations.

Two banks – Ukrprombank and Nadra Bank – are said to be in particularly grave condition with the central bank stepping up oversight over them. On a positive note, at least five of the largest banks in Ukraine were on the verge of receiving fresh capital injections. They include Ukrainian-owned Rodovid, Kreditprombank and Ukrgasbank; as well as Raiffeisen Bank Aval, owned by Austria’s Raiffeisen Group, and Ukrsibbank, majority owned by France’s PNB Paribas.

The biggest two government banks, Oschadbank and Ukreximbank, “turned out to have the least problems, as compared to most large private banks,” Zholud said.

Mid-sized banks may have smaller debt and businesses in general. But they are equally nervous. They have not been promised any government bailouts, but are being encouraged to attract fresh capital from private investors.

There is some hope that the European Bank for Reconstruction and Development, and the World Bank-owned International Financial Corporation, will — with other investors — help to recapitalize shaky banks in return for equity.

Most under threat are “medium-sized banks that took dollar-denominated loans from abroad and now have to repay after the exchange rate has seriously changed, which causes problems,” Zholud warned.

Avoiding panic is the top priority. “When people see reports on television that one bank has stopped giving out the deposits, many immediately start trying to get their deposit back even it is sitting in a reliable bank,” he said.

Meanwhile, bank customers are organizing to assert their legal rights.

Volosov of the All-Ukrainian Association to Defend the Rights of Borrowers and Depositors said his group has 200 members thus far, but the number is growing. He said the group could file lawsuits against banks and the government for violating legal rights of borrowers and depositors.

“We set up this association about one month ago because it is difficult for Ukrainians to defend their rights against banks or the government single-handily," Volosov said.

"One of the laws we are lobbying for would impose a 3 percent fine on banks for each day deposits are returned late,” Volosov added. (Kyiv-Post, 5th February)

Sublime Oblivion said...

That's a very interesting list, Anonymous (at http://verlorenegeneration.wordpress.com/landerisiken-im-uberblick/).

Still, I'm finding it hard to believe that in objective terms (as opposed to market sentiment) Russia, let alone Dubai with its ridiculous amount of reserves per citizen, are riskier than the likes of Bulgaria, Ireland or even Britain.

Anonymous said...

"In January, gold and exchange currency reserves of the National Bank of Ukraine fell by 8.6% or USD 2,722.77 million, and amounted to USD 28,820.43 million as of January 31, the NBU made the statement.

According to data of the National Bank, foreign currency reserves made up USD 28,043.44 million as of January 31; reserve position in the IMF, USD 0.03 million; SDRs, USD 26.98 million; gold, USD 749.98 million. " (Kyiv Post)

I thought the IMF requested the reserves to be around 30 bio. at least?

Anonymous said...

As investors expect further decline of the Hryvnia and also the Ruble, while Central Banks keep it slightly going down, speculation is interesting.

Edward Hugh said...

Hello everyone,

Thanks for all these comments, I'm sorry I have been absent, with some many different things going on in so many different places. I will try and do another post over the next week.

In the meantime just keep them coming.



Anonymous said...

Check this interesting (but neverthless also probably critized) book of Anders Aslund:


Anonymous said...

Timoshenko, prime minister of Ukraine, held some days ago a speech in front of the parliament. Next to some rather fantasy estimations for the Ukrainian economy (GDP-growth about 0.4%, and a general GDP-growth of 5% would be possible - after her - if the goverment works well, budget deficit this year about 2.96% of GDP), she mentioned that the Debt-to-GDP ratio in Ukraine is 11% compared with 60-70% of a lot of other countries.

In this regard, it might be reasonable to read the preface of Roubinis book (to find here: http://bookstore.petersoninstitute.org/book-store/378.html): "Roughly once a year, the managing director of the International Monetary Fund, the US treasury secretary and in some cases the finance ministers of other G-7 countries will get a call from the finance minister of a large emerging market economy. The emerging market finance minister will indicate that the country is rapidly running out of foreign reserves, that it has lost access to international capital markets and, perhaps, that is has lost the confidence of its own citizens. Without a rescue loan, it will be forced to devalue its currency and default either on its government debt or on loans to the country’s banks that the government has guaranteed. This book looks at these situations and the options available to alleviate the problem. It argues for a policy that recognizes that every crisis is different and that different cases need to be handled within a framework that provides consistency and predictability to borrowing countries as well as those who invest in their debt."

So, the corporate debt and private debt in Ukraine is about 100% of the GDP (or more, just somewhere in this region). Assume that a big part is in the end up to the state, the picture of the Debt-to-GDP ratio will look a bit different.

Edward Hugh said...


"So, the corporate debt and private debt in Ukraine is about 100% of the GDP (or more, just somewhere in this region). Assume that a big part is in the end up to the state, the picture of the Debt-to-GDP ratio will look a bit different."

Absolutely. I agree. This is the reason there is a big risk of default. Latvia Debt to GDP will go up in 2 years from 10% to 50% of GDP under the IMF arrangement just because of the Parex bank problem basically. I would like to post on all this, but time is so short.

Anonymous said...

Statement by the IMF Mission to Ukraine
Press Release No. 09/25
February 6, 2009

A mission from the International Monetary Fund (IMF) headed by Ms. Ceyla Pazarbasioglu has been holding discussions with the Ukrainian authorities regarding the first review of Ukraine's Stand-By Arrangement with the Fund.

Ms. Pazarbasioglu issued the following statement today on the status of discussions:

"Since the adoption of the IMF supported program, the global economic environment has deteriorated markedly. Ukraine's economy has not been excluded from this process. The economic situation remains difficult associated with decline in demand for steel products and the sharply reduced access to international capital markets. While the economic outlook for Ukraine has become more uncertain, the underlying dynamism of the economy and a consistent implementation of sound policies should allow a gradual resumption of growth.

"The authorities have responded to these challenges. The currency has undergone a large adjustment, which has improved the outlook for Ukraine's export industries. The current account deficit has started to narrow and, despite the currency depreciation, inflation has continued to decline. The diagnostic phase of the bank recapitalization program has been completed, and its effective implementation should help restore confidence in the banking system.

"The sharper-than-expected contraction in economic activity requires a recalibration of economic policies. In particular, the IMF team and the authorities have discussed potential revisions to the program's balanced budget target for 2009, taking into account the availability of financing. The ongoing discussions are focusing on appropriate fiscal measures, monetary and exchange rate policies, and measures to strengthen confidence in the banking system.

"Significant progress has been made in discussions on fiscal, monetary, and exchange rate policies, and on measures to strengthen confidence in the banking system, but a few issues remain outstanding. Discussions between the Ukrainian authorities and Fund staff on these issues will continue in the coming weeks, and we expect the mission to return soon to complete discussions."

Anonymous said...

This IMF report is very diplomatic.

It almost points only out at the one thing which can - under some point of view - be seen as good, namley the currency devaluation for the export industry. Clear, the devaluation will help to close the gap in the current account and could help to strengthen domestic competition.

But the other side, the higher interest payment for private and corporate organizations, no word... the danger of default, also not mentioned.

Is the IMF also one time critical - or just not offically critical?

Anonymous said...

Ukraine macroeconomic situation, January 2009


[1] According to preliminary data, Ukraine`s real GDP grew by 3.6% yoy over January-November 2008. Given the sharp deterioration of real sector performance during October-November, unfavorable prospects for the global economy and domestic financial turmoil, we now expect GDP to grow by 2.0% yoy in 2008 and to contract by about 3.0% yoy in 2009 with still significant downside risks.

[2] Ukraine`s fiscal position remained strong during January-October 2008 as the consolidated budget was in surplus of 0.9% of period GDP. As a result of budget amendments at the beginning of December, the targeted budget deficit was raised to 2.5% of GDP.

[3] In late December, the Ukrainian parliament approved the 2009 budget with a planned deficit of 3% of GDP contrary to the IMF commitment to have a balanced budget in 2009. Additionally, there are a number of other issues suggesting that 2009 will be quite a challenging fiscal year for Ukraine.

[4] Consumer inflation is estimated to be around 22% yoy in 2008 and about 15% in 2009.

[5] The reversal of international capital flows and worsening macroeconomic fundamentals caused the Ukrainian Hryvnia to depreciate. These pressures, amid the lack of transparency and coordination among monetary and government authorities, transformed into a full-scale currency crisis. As a result, the Ukrainian Hryvnia lost more than 50% of its value with respect to the US Dollar in 2008.

[6] Our estimates of Ukraine`s net external financing needs indicate that although 2009 will be a difficult year for the country, the situation still looks manageable.

[7] Ukraine failed to agree with Russia on a new gas contract for 2009. The new gas dispute may have both positive and negative consequences for Ukraine. [This report was written before the agreement between the two countries during the weekend of January 17-18th, 2009, USUBC Editor]


Economic conditions in Ukraine have been deteriorating more sharply and earlier than we expected. Hit by the combined shock of rising risk-aversion on the global financial market amid growing worries over the health of the Ukrainian banking system, falling world commodity prices and domestic policy tightening, Ukraine`s gross domestic product shrank by 2.1% yoy in October and 14.4% yoy in November. T

This brought cumulative January-November GDP growth to 3.6% yoy, down from 6.9% yoy in January-September. Significant contributors to a steep deterioration in overall growth were industry, domestic trade and construction, the sectors that used to be engines of growth in previous years.

The value added growth in these sectors eased to -0.5% yoy, 2.3% yoy and -12.7% yoy in January-November, down from 5% yoy, 9.4% yoy and -16.1% yoy respectively in the first nine months of the year.

In November, only agriculture and transportation/ communication sectors still reported vigorous value added growth, advancing by 18.0% yoy and 9.3% yoy respectively. At the same time, November`s performance in these sectors was slightly worse than in the preceding month (over the first ten months of the year, value added grew by 18.3% yoy and 10.4% yoy respectively). Industrial performance was disappointing.

Industry reported an almost 20% yoy decline in production in October. Moreover, the situation worsened in November as industrial output contracted by 28.6% yoy. Thanks to decent growth in the first nine months of the year, industrial production declined cumulatively by 0.7% yoy over January-November.

The deterioration was particularly sharp in export-oriented and consumer-credit-sensitive branches (metallurgy, chemistry and transport vehicles).

Abated by high input prices and a continuing fall in world steel and chemical prices, metallurgical and chemical production sank by 35.6% yoy and 19.2% yoy in October and almost 50% yoy and 35% yoy in November respectively. Closely linked to metallurgical performance, the mining industry showed 10% yoy and 60% yoy declines in output in October and November on the back of a 21% yoy and 60% yoy drop in ore extraction respectively.

Higher credit costs and tighter lending standards as well as declining import demand from CIS countries (the main destination for Ukraine`s export of machinery and transport equipment) caused an 18% yoy decline in production of vehicles in October and an almost 52% drop in November. The overall production in the machine-building industry declined by about 40% yoy in November, while it grew by 14.6% yoy just two months before.

Food processing production continued to fall, declining by 9% yoy in November. Despite a record-high harvest this year, the industry experienced an acute deficit in agricultural raw materials (due to the presence of significant lags, the supply of a number of agricultural products such as meat, milk, etc., continued to be affected by the poor 2007 harvest).

The outlook for the rest of this year and the next one is quite bleak. A number of claims suggest a severe deterioration in the labor market since September.

Growing unemployment and pro-cyclical fiscal tightening (in accordance with the IMF program), combined with the ongoing credit squeeze and depreciating national currency signal for more retrenching consumer behavior in the future. As private consumption was the main driver of economic growth over the last five years and accounts for almost 60% of GDP, its downturn will exact a significant toll on economic growth.

Moreover, exports (an important source of economic growth accounting for about 50% of GDP) and earnings are likely to experience difficulties in 2009. The benefits from the weaker national currency for Ukrainian exporters may be eroded by the global downturn and low commodity prices.

In addition, a sharp slowdown in both domestic consumption and exports, the rising cost of and more restricted access to capital (both external and internal) will hit the investment plans of corporate enterprises. Indeed, based on State Statistics Committee of Ukraine data, a sharp deceleration in fixed investment growth from 10.4% yoy in 1Q 2008 to just 4.7% yoy over the first nine months suggests that the Ukrainian private sector already cut their investments into fixed capital significantly in 3Q 2008.

Moreover, this data does not reflect the major financial market turmoil that occurred during October-November. Hence, indicators for the subsequent quarter are likely to notably deteriorate. On a positive note, a fall in domestic demand and energy prices will help to reduce the negative contribution from net exports to GDP through the expected major decline in imports.

Considering the above, we now expect GDP to grow by 2.0% yoy in 2008 and to contract by about 3.0% yoy in 2009 with still significant downside risks (natural gas prices, deeper and longer-lasting recession in developed countries and more severe slowdown in Russia, slow authority response in terms of fiscal policy and growing challenges in the real and banking sectors, intensification of political instability related to presidential elections, etc.)


Ukraine`s fiscal position remained strong during January-October as the consolidated budget was in surplus of UAH 7.4 billion, which is equivalent to 0.9% of period GDP. During the period, consolidated budget revenues grew by 42.5% yoy in nominal terms, underpinned by a 51% yoy increase in tax revenues. According to the State Treasury, revenues to the general fund of the state budget were 6.5% above the targeted amount for January-October.

To a significant extent, higher than expected revenues reflected pro-cyclically strong growth in wages and profits during the previous periods, as well as higher inflation (the 2008 budget assumed inflation of 15.9% in 2008 while it is likely to be above 20% this year). Receipts from three major taxes (value added, personal income and corporate profit taxes) ensured almost 65% of total consolidated budget revenues. In addition, the consolidated budget surplus was the result of low expenditure realization.

Expenditures from the general fund of the state budget were under-fulfilled by 3% over January-October. The government had to postpone the execution or allow only partial financing of a number of budget programs, except social transfers, facing increasing difficulties in obtaining funds necessary to cover the planned budget gap.

Despite a favorable fiscal stance over the first ten months of 2008, it is likely to deteriorate rapidly through the rest of the year and next year. Over 2004-2007, consolidated budget expenditures in real terms (CPI deflated) grew by about 20% per annum, almost twice as fast as in the previous four years (2000-2003). At the same time, fiscal deficits were maintained at about 1.5% of GDP on average during these years. Low fiscal deficits were achieved thanks to a notable increase in revenues.

Elimination of a number of tax exemptions and privileges since 2005, improvements in tax administration as well as strong growth and very favorable world commodity prices helped to boost fiscal coffers. The sharp slowdown in economic activity, depressed world commodity markets and weak external demand are likely to weigh down fiscal revenues. Already in November, revenues to the general fund of the state budget were notably below target.

The Ministry of Finance forecasted that the state budget will be short UAH 7 billion during November-December. At the same time, given the depth of the economic decline in November, the revenue shortfall may be more severe. The government took a number of steps to cut budget expenditures through the end of the year.

In particular, the government froze public sector employees` nominal wages, initially planned to be raised on December 1st in line with the minimum wage increase, and ordered government agencies to cut spending. By securing the IMF stand-by loan at the beginning of November, the government agreed to a significant tightening of fiscal policy. According to the agreement, the 2008 consolidated budget deficit should not exceed UAH 10 billion and should be balanced in 2009.

At the same time, budget expenditure tightening may be a significant challenge for Ukraine`s government authorities. Fiscal budgets of previous years were heavily biased towards social and other recurrent expenditures, which are difficult to adjust, particularly in an election year. Moreover, facing a sharp decline in business activity and profits, affected industries/sectors producers requested budget support.

As a result, fiscal stimuli were granted to the construction sector, agriculture, metallurgy and chemical industry. To sustain the financial performance of the national monopoly "Naftogaz Ukrainy" and State Pension Fund of Ukraine, the government deferred VAT payments for the former and wrote off liabilities of the latter to the state budget (at the beginning of 2008, the Pension Fund of Ukraine was granted a loan of UAH 5 billion to secure timely pension financing).

As a result of amendments to the 2008 budget law approved on December 12th, the budget deficit was raised to UAH 25 billion, or almost 2.6% of GDP, a level that notably exceeds the IMF cap. Moreover, the government has revised the targeted budget deficit financing.

Observing significant under-execution of privatization receipts (which accounted for less than 8% of the target at the end of October), tighter credit conditions on external financial markets and rising yields on emerging market securities, the government increased reliance on domestic debt financing.

However, government securities remained a rather unattractive investment for commercial banks, despite the fact that the government has raised the proposed yields. As a result, a substantial portion of the government securities issued in 2H 2008 was purchased by the NBU. According to the law on the anti-crisis measures approved at the beginning of November as a necessary step to secure IMF lending, such deals are allowed if the attracted funds are used for commercial banks recapitalization purposes.

However, only a quarter of these funds were directed to raise the capital of two state banks (Oshchadbank and Ukreximbank). This may imply NBU financing of the budget deficit, which may hamper recent disinflation progress.

As expected, the government recalled its 2009 budget draft. The revised 2009 budget was presented approved by the parliament on December 25th. Though the government was obliged to prepare a balanced fiscal budget for 2009, the approved budget law envisaged a deficit of UAH 31 billion (about $4 billion), or 3% of forecasted GDP. The targeted deficit, as well as other provisions in the budget law, may delay the recovery of the economy from the current financial crisis as insufficiently tight fiscal policy may slow down the process of leveling out the existing macroeconomic imbalances.

Moreover, the government`s plan to finance the budget deficit with heavy borrowings on the domestic market will lead to a substantial increase in public debt. Coupled with the high indebtedness of Ukraine`s private sector, this means that considerable funds will be diverted from the economy to serve the debt.

Furthermore, the budget foresees that the lion`s share of domestic securities (UAH 44 billion, $5.8 billion) will be purchased by the National Bank of Ukraine. Though this money is planned to be spent on recapitalization of commercial banks, this is likely to cause double-digit inflation to persist in the next few years. A number of other aspects in the approved budget suggest that 2009 will be a challenging fiscal year.

[1] First, the budget was developed on a quite optimistic macroeconomic forecast (0.4% real GDP growth, 9.5% inflation, UAH/$7-7.5 exchange rate, etc.). [2] Second, the government did not specify the forecasted price of imported natural gas next year.

[3] Third, the budget revenue projections were made based on an increase in indirect tax proceeds thanks to a rise in respective tax rates and duties.

However, these projections may not be fully realized as the rise in rates may be outweighed by a consumption depression that`s deeper than anticipated in the budget.

[4] Finally, the significant approved budget deficit, increases in import duties, and violation of some other requirements may cause suspension of the IMF program. At the same time, realizing the detrimental impact of such a scenario to the economy, the Ukrainian government has already sent the request to the IMF authorities to reconsider the program conditions. In addition, positive news in the 2009 budget is the obligation to amend the budget by May 1st 2009.


As expected, energy and food prices, the main factors behind rising inflation in the first half of 2008, started to recede during July-August, driving the overall consumer price index growth down. However, this trend was reversed in September due to utility and service (transportation and communication) tariffs adjustment.

In addition, a sharp depreciation of the national currency during October-November became a powerful source of inflation during these months, passing through a number of imported commodities, such as fruits, vegetables, clothes and footwear, drugs, etc. As a result, the consumer price index grew by 1.7% month-over-month (mom) in October and 1.5% mom in November, bringing the eleven-month price growth to almost 20%. Despite the fact that the global shock is forecasted to be deflationary for developed countries, the anticipated economic downturn and labor market weaknesses will not bring sufficient inflation relief for Ukraine in 2009.

[1] First, the IMF stand-by agreement envisages a quarterly adjustment of utility tariffs for them to reach cost-covering levels by mid-2010.

[2] Second and the most important, sharp Hryvnia depreciation in 4Q 2008 and the likely further weakening of the national currency during 2009, though not as substantial as in 2008, will continue to feed inflationary expectations.

More expensive imports should discourage consumer spending on imports, thus helping to moderate inflation as well as to bring the trade deficit to more sustainable levels. However, while it would be rational behavior to switch to cheaper domestic substitutes, these expectations may not materialize due to a slow domestic supply response.

The latter is rooted in structural weaknesses of the Ukrainian economy (heavy reliance on exports on a relatively undiversified commodities, energy-inefficient and import dependent real sector) and inadequate business climate, for years suffering from delays in and

piece-meal structural reforms.

In addition to sharp upward price correction of imported goods, the currency shock may offset the benefits from lower world energy and raw materials prices. Given the above, we forecast consumer prices to grow by about 15% in 2009. Though inflation will remain in double digits in 2009, this will be a visible deceleration from the 22% price growth estimated for the end of 2008.

The foreign exchange market was extremely volatile during October-December. Similar to other emerging market economies, in the last couple of years Ukraine received large capital inflows, which together with loose domestic fiscal and monetary policies allowed the economy to demonstrate above-region-average economic growth rates. The global financial market turmoil and global economic slowdown has uncovered three major pressure points in Ukraine`s economy.

[1] First, Ukraine has accumulated $105.5 billion of gross external debt as of the end of September 2008 with private sector debts accounting for about 85% of the total amount. A substantial part of private sector liabilities is due at the end of 2008 and 2009.

[2] Second, buoyant domestic demand was increasingly satisfied by imports, causing trade and current account balances to deteriorate. On the back of mounting external financing needs, Ukraine was particularly sensitive to changes in investors` sentiments and access to international finances.

[3] Third, encouraged by a prolonged period of relative exchange rate stability and loose monetary policy, commercial banks have expanded their credit portfolios at a fast pace, including in hard currency (the share of forex-denominated loans in total credits exceeded 50% since the beginning of 2007 despite the NBU measures to discourage commercial banks from issuing credits in foreign currency).

Extensive economic literature shows that periods of credit booms are usually followed by a rise in non-performing loans (NPLs). Though official statistics on NPLs was quite favorable so far, it is reported with substantial delays. Now, amid an economic slowdown, growing unemployment and sharp depreciation of the national currency, the Ukrainian banking system is likely to face an increasing number of corporate and private defaults. Already in December, a number of commercial banks started to advertise foreclosure sales on their official websites.

Due to the above vulnerabilities, the drying out of international capital flows to Ukraine and worsening macroeconomic fundamentals tilted the balance towards Hryvnia depreciation. At the same time, sizable gross international reserves in the amount of $37.5 billion at the end of September as well as securing $16.4 billion under the IMF stand-by agreement at the beginning of November should have eased the pressures or at least allowed to smooth the process.

Instead, during October-December 2008, the Hryvnia lost almost 60% of its value versus the US Dollar with exchange rate interbank market quotations varying from about UAH/USD 5.1 at the beginning of October, approaching UAH/USD 10.0 in mid-December and returning to about UAH/USD 8.0 at the end of the year. The wide fluctuations in the exchange rate may be attributed to the lack of transparency and consistency in the NBU measures to stabilize the market as well as poor coordination between the government and monetary authorities in addressing the financial and economic crisis.

Realizing existing macroeconomic imbalances, the NBU did not resist the exchange rate adjustment towards its new equilibrium level. Limited NBU interventions during September/the first half of October were in line with May`s decision to switch to a more flexible exchange rate regime.

However, the sporadic nature of these interventions with the surrounding uncertainty regarding the timing, rate and size of the interventions, nontransparent procedure of selecting the banks whose bids were satisfied generated panic and speculative developments on both interbank and cash foreign exchange markets.

These intensified the erosion of public confidence towards the NBU policy as well as the banking system as a whole, already injured by liquidity stresses in several commercial banks, which led to the NBU taking control over one of the banks and deposit withdrawals from the banking system. During October-November, Hryvnia-denominated deposits declined by UAH 32.4 billion ($4.8 billion), or 14%.

Though the official monetary statistics reported an increase in forex-denominated deposits by 28% during these two months, this growth should be attributed purely to the valuation adjustment that occurred as a result of sharp Hryvnia depreciation versus other currencies. In US Dollar terms, forex-denominated deposits declined by $1.6 billion, or 7.1%.

To calm the forex markets and experiencing strong political pressure to stabilize the markets, the NBU resorted to massive interventions, selling $4.1 billion in October and $3.4 billion in November. Observing rapid depletion of reserves, the NBU tried to stabilize the market by setting technical restrictions on interbank forex markets.

However, due to a nontransparent refinancing policy, experiments with the forex-market trading rule (which resembled an intension to set a rigid exchange rate fix), incomplete disclosure of the size and structure of the gross international reserves, and insufficient political autonomy, the NBU failed to raise confidence towards its exchange rate policy and calm the market. Obliged to adhere to IMF restrictions on the size of international reserves, and thus interventions, the NBU had to allow the Hryvnia to depreciate by almost 30% just during the first half of December.

However, pressured by political forces, it resumed interventions on a daily basis during the second half of the month, which allowed the NBU to maintain the exchange rate at about UAH/USD 8.0 until the end of the year. Unfortunately, the macroeconomic environment also remains unfavorable in 2009. Hence, we expect further depreciation of the Hryvnia versus the US Dollar.

The sale of gross international reserves, which usually has a sterilization effect, as well as deposit withdrawals affected the liquidity stance in the banking system and growth path of monetary aggregates.

At the same time, the NBU supported commercial banks` liquidity by injecting UAH 75 billion ($11 billion) through its refinancing channel during October-November. As a result, monetary aggregates grew by about 1.1% during these two months, which enhanced the deceleration of monetary aggregates growth in annual terms.

The above developments as well as the imposition of restrictions on the issuance of foreign currency loans and announced tightening of reserve requirements on foreign-currency denominated loans since the beginning of 2009 resulted in sharp deceleration of credit growth. In particular, in annual terms Hryvnia-denominated credits decelerated from about 80% yoy at the beginning of 2008 to 41% yoy in November.

The growth of credits in foreign currency, denominated in US Dollars, declined from about 77% yoy in January 2008 to 43.2% yoy in November. The credit squeeze may be beneficial in terms of curbing consumer demand and thus reducing imports.

However, it will be damaging for the credit-dependent in the past economy, which still remains in need of considerable financial resources to renew its outdated production capacities, finance infrastructure and energy-saving projects and fulfill structural reforms. More restricted access to credit resources is among the main reasons behind our forecast of real GDP contraction in 2009.


Seemingly unaffected by international financial turmoil in the first nine months of 2008, Ukraine has started to fully feel its impact since October.

September`s foreign trade data still demonstrated favorable export performance, as exports grew by 62.7% yoy in value terms that month, bringing the cumulative growth to over 50%.

However, deeper data readings showed that more than half of this increase was received thanks to 6.1 times higher exports of agricultural products, while export of metallurgical products and transport equipment notably decelerated. Disappointing data on economic growth in developed countries as well as the deterioration of their growth prospects in the near future caused a sharp decline in world commodity prices.

The downturn in world prices for steel and chemical prices coupled with weakening European and emerging countries (particularly Russia, Turkey, etc.) demand have produced a sharp slowdown in Ukraine`s exports in October. In particular, exports growth was cut in half in value terms to 30.2% yoy in October.

As a result, ten-month export growth slid to 48.4% yoy. While exports prospects do not look comforting for the coming months, the sharp depreciation of the national currency observed during October-December as well as easing energy prices will help to restore the competitiveness of Ukraine`s products on foreign markets.

So far, however, import bills have continued to grow at a fast pace. In September, commodity imports grew at a record-high 73.6% yoy on account of a 95% yoy increase in imports of mineral products, 65% yoy growth in imports of machinery and transport equipment and 77% yoy rise in imports of metallurgical products.

In October, however, imports also sharply decelerated, rising by less than 30% yoy. Such rapid deceleration may be attributed to rapid deterioration of industrial production as well as technical restrictions on advanced import payments imposed by the NBU at the beginning of October.

Though a few days later the NBU relaxed these restrictions, uncertainty regarding the future import transactions as well as the turmoil on Ukraine`s foreign exchange market may have affected importers` and their counterparts` confidence in timely payments. Cumulatively, imports growth decelerated from 60.2% yoy in January-September to 56.5% yoy in January-October. Since import growth notably outpaced exports, Ukraine`s FOB/CIF merchandise foreign trade deficit kept increasing and reached $16.1 billion as of the end of October.

The widening foreign trade deficit and higher dividend payments formed a record-high monthly current account deficit of $1.9 billion in October. The ten-month current account gap widened to $10.5 billion, which corresponds to 6.5% of period GDP.

Preliminary balance of payments (BoP) data for September-October point to the growing deficit on financial and capital accounts. In particular, monthly FDI inflow decelerated sharply from $1.4 billion on average during May-August to $0.7 billion in September and $0.3 billion in October.

Though Ukraine`s private sector continued to borrow from abroad, much higher private debt amortization payments as well as other capital outflow led to a decline in NBU foreign exchange reserves. Our estimates of Ukraine`s external financing requirements show that though 2009 will be a difficult year for the country, the situation still looks manageable.

We believe that the current account deficit will decline to about 3.5% of GDP thanks to improved competitiveness of Ukraine`s exports and a fall in imports, particularly of consumption goods. At the same time, private external debt payments due in 2009 are estimated to increase to $40-45 billion.

However, excluding trade-related external liabilities and making assumptions on the Ukrainian subsidiary banks and corporate debt to their parent companies abroad, the overall financing need is estimated at about $20 billion. Given the IMF and other International Financial Institutions (e.g., World Bank, EBRD, etc.) support and moderate FDI inflow, the net external financing gap may stand at about $10 billion, which would mean a reasonable decline in the NBU reserves and further currency depreciation.

At the same time, this scenario contains significant downside risks (the price for imported natural gas still remains unknown, the approval of the 2009 state budget law with 3% of GDP deficit risks to lead to IMF program suspension, the deterioration of the global economy may be deeper and longer than forecasted, political instability may intensify due to the upcoming presidential elections, etc.)


During December 2008, Ukraine failed to agree with Russia on the price of imported natural gas to be paid in 2009. For a number of years, Ukraine paid below-market price for imported natural gas. However, with the cooling of Ukrainian-Russian relations since 2005, Ukrainian piece-meal efforts to reform the energy sector, and the growing international price for mutual gas, Ukraine and Russia were regularly involved in gas disputes, which already resulted in temporary cessation of natural gas supply to Ukraine at the beginning of 2006.

At the beginning of October 2008, Ukrainian and Russian Prime Ministers signed a memorandum envisaging a three-year transition towards a "market-based" price for imported gas and removal of the opaque intermediary - RosUkrEnergo. The gas dispute between the two countries intensified in late October, when the Russian state gas monopoly "Gazprom" announced that Ukraine did not timely settle accounts for natural gas deliveries.

Though Ukraine paid back the lion`s share of its debt to Gazprom by the end of the year, the countries did not agree on the price for imported natural gas. The offered price by Gazprom varies from $450 to $250 per thousand m3 and insisted the transit fee through the territory of Ukraine should remain unchanged. Ukraine considered the price of $201-235 per thousand m3 but wanted to raise the transit fee to $2.0 per thousand m3 per 100 km, up from $1.7 in 2008.

The rather narrow difference between the offers suggests some vested interests might be blamed for the failure to reach an agreement. Being the most non-transparent sector in Ukraine, the energy sector gives ample opportunities for rent-seekers. With the absence of a new contract on gas supply to Ukraine, Russia stopped gas supply to Ukraine on January 1st 2009.

As it was in 2006, Russia first reduced gas flows into the Ukrainian pipeline in the amount equal to Ukraine`s shipment, while continuing supply to European countries. A few days later, however, accusing Ukraine of stealing gas destined for European consumers, Russia stopped gas flows to Ukraine entirely.

While the cutoff of gas supply to the European countries may expedite the gas talks between Ukraine and Russia, the current gas dispute may have far-reaching consequences for Ukraine. On a positive note, it is likely to facilitate transition towards market-based energy prices, which may increase political independence of Ukraine away from Russia`s influence.

This transition may also stimulate Ukrainian government authorities to proceed with reforms in energy and related sectors (e.g., utility sector). On the other hand, Ukraine, as well as Russia, failed to confirm to the European countries that it is a reliable gas transit country, which damaged its international image. In addition, the current situation may facilitate construction of alternative pipelines that bypass Ukraine.

Analytical Report: By Olga Pogarska, Edilberto L. Segura

SigmaBleyzer Emerging Markets Private Equity Investment Group,

The Bleyzer Foundation, Kyiv, Ukraine, Thursday, January 22, 2009

Anonymous said...

[19.05.2008 18:58] By Balazs Horvath (IMF) and Martin Raiser (WB), Economic News, USUBC
Ukraine: confront inflation now to avoid regrets later

Surging inflation in Ukraine has become a major concern. Twelve-month PI inflation in April exceeded 30 percent, among the highest rates in emerging markets. This makes fighting inflation a top political priority.

This is not a time for political point scoring. Successfully reducing inflation will require all major political forces to work together: the Government, the President, the National Bank of Ukraine and the Verkhovna Rada.

The underlying cause of the rise in inflation is that domestic demand exceeds supply by a significant margin.

This overheating reflects years of:

a. real wages rising faster than productivity;

b. social transfers, including pensions, rising at an unsustainable pace;

c. an explosive growth in money supply and credit fueled by large

capital inflows under the de facto exchange rate peg; and the

d. effects of improving terms of trade on national income and domestic


Exogenous price shocks for food, energy and other commodities have played a notable additional role.

High inflation causes severe harm. Over longer periods, countries with inflation above single-digit levels have grown substantially slower on average than those with low inflation.

High inflation markedly lowers economic efficiency by confounding price signals. It gives rise to a price-wage spiral and undermines competitiveness.

It also weakens trust in the national currency, often stimulating capital flight and diverting domestic savings from investments in productive capacities.

Finally, inflation hurts the poor in particular, since they are much less able to protect themselves against the erosion of their savings and incomes. The public and politicians are right therefore to worry about inflation.

Now is the time to act in concert to curb inflation. If macroeconomic policies are appropriately tight, inflation could decline substantially in the second half of the year as growth slows to a more sustainable pace and the new harvest-most likely better than last year`s-helps lower food price pressures.

The IMF and the World Bank believe that inflation could return to the low teens in 2009 and to single digits by 2010. This would be in line with the experience of countries that adopted an appropriately flexible and tight macroeconomic policy mix, allowing them to contain inflation and weather shocks well.

But without ppropriate policies, inflation expectations are likely to drift further upwards, giving price increases momentum that would be increasingly hard to break.

Addressing high inflation is primarily a matter of controlling demand and costs. Structural reforms that raise the supply of goods and services are critical and should be implemented without delay, but their effect on supply and inflation will only materialize in the medium-term.

Thus, near-term actions to lower inflation should focus on macroeconomic policies managing domestic demand:

a. Fiscal policy should be tightened including by saving, rather than spending, budgetary revenue overperformance and any excess privatization receipts.

b. Social transfers should be contained through improved targeting, while retaining budgetary support to the most vulnerable parts of the population.

c. To break the incipient wage-price spiral, minimum and public wage increases should be kept at a level consistent with single-digit inflation.

d. At the same time, the scope for monetary policy tightening should be increased by gradually moving away from the exchange rate peg in the context of adopting inflation targeting as the monetary policy framework.

The authorities` initial policy response does not have consistent political support and has failed so far to stabilize inflation expectations.

The budget was kept in broad balance to date, and the NBU has taken several measures to tighten monetary conditions.

These steps, presented in the Government`s anti-inflation program of March 2008, go in the right direction. But they are already under attack.

To raise the effectiveness of anti-inflation measures, the authorities should stay the course and clearly explain that the hryvnia will be allowed to fluctuate within a wider band to allow for more active monetary policy, and that further increases in public spending and the minimum wage will be delayed until demand pressures ease.

By contrast, planned administrative interventions in supply and price formation would fail to sustainably raise supply or lower demand, and would exacerbate the inconsistency of the policy mix, thereby simply accumulating even greater problems for the future.

Ukraine is at a cross-roads and inaction could be very costly. Today, the issue is no longer whether some slowdown in growth is a price worth paying for lower inflation-some slowdown is inevitable and indeed desirable to bring demand back into balance with supply.

By acting now to consistently tighten macroeconomic policies Ukraine will be able to limit the costs of lowering inflation and inflation will come down markedly starting this summer.

Conversely, delaying such policy action could push Ukraine towards a prolonged period of high inflation, volatile and potentially negative economic growth, and raise the risk of a sudden breakdown in investor confidence. Such a scenario would primarily hurt the poor and the middle

class, at whom recent spending increases have been targeted.

Political backing is critical at this juncture. Sustained rapid growth is well within reach given Ukraine`s recent growth momentum and excellent potential stemming from top-notch human capital, considerable comparative advantage in several key sectors, favorable geographical location, and promise of convergence toward the EU`s level of productivity.

Political backing of near-term demand containment is key for ensuring the credibility of the necessary inflation-fighting package, and hence, its success.

Ukraine`s politicians have joined forces in the past around issues that mattered critically for the country`s future, such as WTO accession. Inflation-especially given its link to sustained growth-is clearly such a critical issue today.

Politicians should act now on the basis of shared long-term interests and back a coherent inflation-fighting policy package as well as a minimum critical mass of structural reforms.

By Balazs Horvath, Resident Representative in Ukraine,

International Monetary Fund (IMF) and by

Martin Raiser, Economic Advisor, Poverty Reduction and Economic

Management, Europe and Central Asia Region, The World Bank

Economic News (in Russian), Kyiv, Ukraine, Friday, May 16, 2008

Re-published in English by the U.S.-Ukraine Business Council (USUBC)

Kyiv, Ukraine, Friday, May 16, 2008 with permission of the authors.

Edward Hugh said...

"This is not a time for political point scoring. Successfully reducing inflation will require all major political forces to work together: the Government, the President, the National Bank of Ukraine and the Verkhovna Rada."

Absolutely agree, but it is hard to see this happening in practice, and meantime you are steadily being pushed towards default, which would be a most tragic outcome.

Edward Hugh said...


"According to preliminary data, Ukraine`s real GDP grew by 3.6% yoy over January-November 2008."

Yep. They release the GDP data in this strange way. It is impossible to work out what the rate was in November itself, we will have to await the January 2009 number to see what the actual year on year rate is, since they will have to give a comparison with January 2008.

Edward Hugh said...


"Is the IMF also one time critical - or just not offically critical?"

This is pure diplomacy. There is obviously some very hard talking going on behind closed doors. They are not going to publically undermine your political representatives. On the other hand the situation is very very serious, and the IMF must be as worried as I am.

Anonymous said...

Maybe there is soon more money to spend - at least psychologically:

"The Ministry of Finance of Ukraine is asking the Russian Finance Ministry to estimate a possibility of granting Ukraine a $5 billion loan to cover deficit of the national budget, reads a statement made by the press service of the Russian Finance Ministry".

Such a credit would definatley not come for free - politically.

Anonymous said...

I read somewhere that the NBU spent in January 2bn $ to keep the current exchange rate of 8 - 8.5.

Someone knows the elasticity of demand of currency, meaning, what would have happened withouth that?

Anonymous said...

As we just can learn, the IMF delays the second tranche of payment to Ukraine (http://kommersant.ua/doc.html?docId=1115937; http://www.ukraine-nachrichten.de/index.php?id=1066). Main critics: Unbalanced budget and exchange rate policy

Anonymous said...

The National Bank of Ukraine (NBU) will continue supporting the hryvnia exchange rate by smoothing out the interbank currency market, Acting NBU Head Anatoliy Shapovalov told Interfax-Ukraine on Tuesday.

"The National Bank will remain on the interbank market and smooth the peaks," he said.

Shapovalov called for an additional analysis of the reasons for the growing quotations that have been recently observed, because the situation has slightly improved from the view of the foreign trade balance.

"Export receipts grew by 10 percent in January compared to December last year," he said.

In this connection, he said that the banks themselves are interested in keeping a stable exchange rate, as they recognize their borrowers are facing serious difficulties with the clearance of their currency loans at the current exchange rate.
(Kyiv Post)

Just delay of "pain"....clearly, that IMF is not happy.

Anonymous said...

Short term movements of exchange rates follow theoretically a random walk, so hardly predictable.

Long/Mid-term movements are following the Purchasing Power Parity (neglecting transport costs and other distortions), resp. Current Account Dynamics.

Anonymous said...


The CDS spreads for Ukrainian state bonds have risen once again and the implicit risk (calculated out of the spreads), are the highest in the world in the meanwhile.

Anonymous said...

By ALAN CULLISON (The Wall Street Journal)

The International Monetary Fund is likely to suspend loan payments to Ukraine, a move that would further push the government toward Moscow for aid and exacerbate a feud between top leaders in Kiev.

Ukraine is failing to meet the terms of its loan deal with the IMF, and likely won't get the next installment this month, according to a person close to talks between the fund and the government in Kiev.
[Ukraine Economic Crisis]

Faced with a cash shortage, Kiev is passing the hat around to global powers. Talks were held in Moscow last week over a $5 billion loan to help plug Ukraine's budget deficit.

Ukraine Prime Minister Yulia Tymoshenko said her government also sent letters to the U.S., European Union, China and Japan, and that "Russia is ready to help with the credit agreement's signing."

President Viktor Yushchenko criticized the talks with Moscow. "It's a dangerous policy and poses a threat to Ukraine's national interests," he said.

The U.S. State Department said it was looking into reports of Ukraine's request for aid.

Ukraine has been hit by falling prices of metals and fertilizers, its main exports. Infighting between Mr. Yushchenko and Ms. Tymoshenko has led to a policy deadlock.
[Yulia Tymoshenko] Associated Press

Ukraine parliamentarians watch results of a no-confidence vote against Prime Minister Yulia Tymoshenko, center. The motion was rejected.

The deficit has been a sticking point in talks with the IMF on the release of the second installment of a $16.4 billion loan that it agreed to extend to Ukraine last year. The IMF released the first $4.5 billion tranche in November and had made further disbursements contingent on Ukraine reducing the budget shortfall and making progress on bank restructuring.

Ms. Tymoshenko's government's 2009 budget is forecast to show a deficit of 3% of gross domestic product.

Last week, an IMF mission monitoring Kiev's progress left without an agreement with the government that would have paved the way for disbursing the next loan tranche. Ceyla Pazarbasioglu, assistant director of the European Department of the IMF, said "further actions, including structural fiscal measures, are needed for us to recommend completion of the review."
—James Marson and Louise Radnofsky contributed to this article.

Write to Alan Cullison at alan.cullison@wsj.com

Anonymous said...

With an implicit attack on Tymoshenko, Pinzenyk resigns as Finance Minister of Ukraine

The statement reads as follows: “It was not the first time that I worked in the government. And I has always occupied a professional position. A balanced budget, with a minimal level of deficit, restriction of debts, non-emmission sources of financing the deficit – these and other principles were my working guidelines”.

“However, today the professional poisition of the Finance Minister became a hostage of politics. The Finance Minister cannot change the situation. At the same time, he cannot refuse his professional approaches”, V.Pinzenyk stressed.

Anonymous said...

Ukraine's outlook worsens, as finance minister quits
Fitch cuts Ukraine's credit ratings, citing possible banking and currency crisis
By Polya Lesova, MarketWatch
Last update: 5:02 p.m. EST Feb. 12, 2009
NEW YORK (MarketWatch) -- Ukraine's economic outlook took a turn for the worse on Thursday after the finance minister resigned and Fitch Ratings downgraded the country's credit ratings on growing risks of a banking and currency crisis.
Ukraine's finance minister, Viktor Pynzenyk, quit his post Thursday over budget and policy disagreements with Prime Minister Yulia Tymoshenko, the Associated Press reported.
Pynzenyk said he was resigning because of the government's refusal to cut spending and reduce this year's huge budget deficit, according to the report.
Separately, Fitch Ratings downgraded Thursday Ukraine's long-term foreign and local currency issuer default ratings to B from B+.
"This reflects increased risk of a banking and currency crisis in Ukraine, due to intensified stress on the financial system and greater risks to successful implementation of Ukraine's IMF [ International Monetary Fund]-supported program," Fitch said.
Thursday's developments came amid growing uncertainty as to whether the IMF will disburse more money under its arrangement with Ukraine. Last November, Ukraine secured a $16.4 billion stand-by arrangement with the IMF; of that money, only $4.5 billion has been disbursed so far.
An IMF mission reviewing Ukraine's arrangement with the fund left Kiev last week without making it clear whether or not more money will be disbursed.
Ukraine is one of the Eastern European nations most adversely affected by the global financial and economic crises.
The country is also plagued by political instability. Last Friday, Tymoshenko's government survived a no-confidence vote in parliament. The situation has been further complicated by a power struggle between Tymoshenko and President Viktor Yushchenko, once a close ally.
Resignation spells trouble
Pynzenyk's resignation is "obviously a blow to the Tymoshenko administration but not entirely unexpected," said Timothy Ash, head of CEEMEA research, at Royal Bank of Scotland.
"Pynzenyk was well regarded -- seen as a competent "monetary" economist, and generally seen as being a strong supporter of the IMF's drive for the government to run a balanced budget in 2009," Ash said in a research note.
In December, Pynzenyk refused to sign the 2009 budget, which was approved by parliament and targeted a deficit of 3% of gross domestic product.
"The planned deficit would be in violation of the IMF agreement, which Pynzenyk was instrumental in getting, so the exit of an orthodox policy-maker spells trouble for Ukraine," said Win Thin, senior currency strategist at Brown Brothers Harriman & Co.
In recent days, there have been media reports that the IMF may not release the second tranche of the $16.4 billion aid program as scheduled because of disagreements over fiscal policy.
"While the IMF has raised the possibility of adjusting some of the program targets due to the sharper than expected deterioration in the global economic outlook, we do not think it will cut Ukraine much slack," Thin said in a research note.
Ukraine's GDP is expected to contract by over 5% this year.
Fitch cuts ratings
Fitch cut Ukraine's credit ratings to B from B+ on Thursday, bringing them in line with Standard & Poor's B rating.
"The political consensus needed for Ukraine to adhere to its IMF-backed program is fragile, while the global and regional macroeconomic environment has deteriorated further since the previous downgrade in October 2008," said Andrew Colquhoun, director in Fitch's sovereigns group, in a statement.
Stress on Ukraine's heavily-dollarized financial system has intensified, and the central bank has taken six banks into administration, Fitch said. Local-currency deposits in the banking system fell 7.4% month-on-month in January, while foreign exchange deposits declined 2.2%.
Ukraine's currency, the hryvnia, has fallen 46% against the U.S. dollar since July. The central bank has come under political pressure to stop the currency's depreciation, Fitch said. The country's foreign exchange reserves fell to $28.8 billion by end-January 2009, 24% below a peak of $38.1 billion at the end of August.
"A full banking and currency crisis would damage the real economy and the sovereign's financing options, directly impairing sovereign creditworthiness," Fitch said.
The agency said it expects the next $1.9 billion tranche from the IMF to be disbursed, possibly with a delay.
"However, Fitch is concerned that the program is at risk from the difficulty of securing the necessary policy consensus in a challenging political environment," the agency said. "Even if the program remains on track, the further deterioration in global economic prospects since October 2008 adds to the difficulties facing Ukraine."

Anonymous said...

looking back your title "in search of Australia" was a shitty choice. What is left now hat the new numbers for january are in? Ukraine fell of the earth?

Anonymous said...

Ukraine's GDP declined 20 percent in January year-on-year, the head of the group of advisors to the chairman of the National Bank of Ukraine, Valeriy Lytvytsky, told Interfax.

"The decline in GDP in January was about 20 percent according to my reckoning. It's the biggest drop ever. It's a bad start," he said.

The construction sector and industry have been the hardest hit by the economic crisis, he said.

"Industry has declined for the sixth month in a row. The 16.1 percent decline in January compared to December 2008 was the biggest decrease since January 1994, when there was an 18.6 percent drop," Lytvytsky said.

Industrial production in January was 34.1 percent below the level in January 2008. The year-on-year decline in construction increased ten-fold to 57.6 percent, he said.

"At the start of last year there was one sector in recession - construction. All the rest were in positive territory. Now only one economic sector is growing - agriculture - with growth of 0.5 percent, within the margin of error. All the other basic industries, which account for about 80 percent of GDP, are contracting," he said.

The State Statistics Committee will not be publishing monthly GDP results for January in line with the switch to international-standard, quarterly reporting. However, it will continue publishing monthly results for individual economic sectors - agriculture, industry, construction and transportation. (Kyiv-Post)

Anonymous said...

Market Scan
Ukraine May Be Next To Default
Vidya Ram , 02.13.09, 3:00 PM ET


In December, Ecuador became the first country to buckle under the current financial crisis and default on its loans. Now with its outlook deteriorating rapidly, there's a good chance that Ukraine will become the second.

Ukraine took three significant blows within the space of the week. The International Monetary Fund said on Feb. 7 it was delaying the second $1.9 billion tranche of a $16.4 billion loan, which led to Thursday's resignation of Ukraine's finance minister Viktor Pynzenyk -- he said he was stepping down because of the government's refusal to cut its budget deficit according to the terms of the loan left him in an untenable position.

On top of that, ratings agency Fitch cut the country's long-term foreign and local currency credit rating to below investment grade -- to "B" from "B+" with a negative outlook -- meaning that a further downgrade is likely.

Together this spells big new troubles for Ukraine, according to Paul Biszko senior emerging market strategist at RBC Capital in Toronto. "Debts particularly on the private sector side and extreme liquidity stress could push Ukraine into default," Biszko told Forbes. "The odds are rising."

Ukraine had pledged to cut its budget deficit by $4.9%, to $10.0 billion -- 1.1% of gross domestic product -- but infighting between arch-rivals Prime Minister Yulia Timoshenko and President Viktor Yushchenko has meant that it has not followed through so far. With elections coming up next year, and an economy suffering as a result of a plummeting currency and falling commodity prices, it is very unlikely to do so in the future.

Timoshenko has been appealing to Russia and the Group of Seven nations to step in with support with a $5.0 billion loan, but RBC's Biszko says there is "little chance of bilateral cash" coming through.

According to Tom Fallon, head of emerging markets at fund manager La Francaise des Placements, Ukraine may be able to struggle through the current year, because its external debt that must be repaid this year represent less than a project 10.0% of fiscal revenues.

Ukraine's final hope of a rescue may lie with the European Central Bank. A major exporter of steel to the rest of Europe, a transit route for Russian gas, and with many local banks belonging to major European ones such as Unicredito, ING and Raiffeisen, a default by Ukraine is a risk the central bank may be unwilling to take. Defaulting on loans can be devastating to an economy: Argentina's default in 2001 wiped out a quarter of that year's gross domestic product, and has taken a long and painful restructuring process to get it back on track. (Forbes)

Edward Hugh said...

Thanks for putting all this up. I am reading. Just about to put a new post with the fresh data.

I do read it even if I don't have time to comment much.