Ukraine bankers cautious on IMF relief - FT

10:11, 28 October 2008
Ukraine
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Rivalling lawmakers pre-occupied with prospects of early elections

Bankers were cautiously optimistic on Monday that the $16.5bn loan deal with the International Monetary Fund at the weekend would help deal with Kyiv’s sliding currency and shaky banking system.

Ukraine’s parliament is due to convene on Tuesday after failing last week to adopt the legislation required for receiving the emergency IMF loan, Financial Times reported.

The IMF has made final approval of the loan dependent on legislation that would help stabilize Kyiv’s banks amid liquidity and confidence problems. But bankers expressed nervousness that rivalling lawmakers were pre-occupied with the prospects of early elections and unable to reach consensus on the crucial legislation.

Peter Baron, CEO of VAB Group, a Ukraine-based bank, said “there is no question the big IMF loan will have a positive effect.”

But, Mr Baron said the business community was taking a “wait and see” approach in what are still “unpredictable times.”

Kyiv’s central bank this month spent more than $3bn in reserves, now at $34bn, to defend its currency, which has slid from a rate of 5 to 6 relative to the US dollar.

Bankers also worry how a looming world recession could hit Ukraine’s export-oriented economy. It has grown impressively in recent years but remains vulnerable to world demand for steel and commodities.

Reports in recent days suggested with demand waning, production was grinding to a halt at several steel mills. The sector is Kyiv’s main source of foreign currency and employs hundreds of thousands of people. Some factories warned layoffs could follow.

Bankers worry political feuds could complicate the country’s ability to respond.

The main sticking point is early elections. Viktor Yushchenko, president, seeks to hold snap parliamentary elections. Eager to remain premier, Yulia Tymoshenko opposes a snap poll.

Kyiv’s small and illiquid stock market fell nearly 4 per cent on Monday continuing its plummet to levels not seen since 2004. Hapoalim, an Israeli bank, also said it had backed out of its Ukraine expansion plans citing the global financial crisis.

Financial Times

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