Ukrainians see winter of unease despite IMF loan

14:40, 06 November 2008
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The global crisis finally reached Ukraine

From Lada taxi drivers to antique dealers, steelworkers to pastry sellers -- Ukrainians are suffering from the global financial crisis and few expect a multi-billion dollar IMF loan to do much to ease the pain, Reuters reported.

The International Monetary Fund approved a $16.5 billion loan late on Wednesday, releasing $4.5 billion immediately to help boost the shaky banking sector and stabilise the currency.

Driving a clapped out 1987 black Lada taxi, Valentyn has seen the capital of the ex-Soviet state boom in recent years, boosted by almost unrestrained lending to businesses and, more recently, ordinary consumers.

Businessmen, or their well-heeled wives, drive gas-guzzling SUVs in central Kiev, eat in pricy restaurants and frequent shops selling Armani clothes, Mont Blanc pens and Rolex watches.

But in the past two months, after U.S. financial giants collapsed, Iceland was brought to its knees and European governments partly nationalised their banks, the global crisis finally reached Ukraine.

"Oh, the crisis," Valentyn laments, as the car rattles under his heavy frame. "People are working, but for sustenance only. I can feed my family every morning, yes, but to renovate the flat, no. Everything is too expensive."

Antiques dealer Leonid Komski, sitting next to a $30,000 icon in his back office, said he was trying to stay calm. "We are doing what everyone else is doing, we are cutting our costs as much as we can," he added.

Others are finding it harder not to panic.

"Am I worried? I`ll tell it straight -- I was made redundant by my company a week and a half ago. I have been going about Kiev trying to find work," said Oleksander, a visibly shaken middle-aged man who had driven a truck for a furniture company.

Standing at a bus stop with his wife after a day of scouring the city for a job, Oleksander said he was not sure how he would keep up the payments on his apartment.

A lack of jobs and inflation of 25 percent also worry student Liza Kontsur, who said she was unlikely to find work in her home town of Zaporizhya, where the world`s top aluminium producer RUSAL suspended production due to high energy costs.



Ukraine`s economy completely ignored almost constant political turmoil since the 2004 "Orange Revolution" that brought the current pro-Western political elite to power.

Driven by prices for steel -- a key export -- and domestic demand, it grew on average 7 percent in the past eight years.

Steep price rises for Russian gas turned the current account into deficit in 2005 and it is widening at an alarming pace. This was sustainable as foreign investment flowed in, allowing the central bank to keep the currency pegged to the dollar at a stable rate without much effort.

With a global economic downturn, investment will drop off and steel prices have already started to fall, affecting workers in the east of the country and threatening to push the current account gap even wider as exports decline.

The hryvnia hit a record low of 7.2 per dollar last month despite the central bank spending 15 percent of reserves to prop it. With more than half of lending in foreign currencies - rates were cheaper - Ukrainians now pay far more to service debt.

Vena Beleva, director of European-style "Repriza" coffee shops, is trying to restructure her debt with the banks.

The chain is popular amongst middle-class spenders for croissant and Italian coffee breakfasts, elaborate cakes and business lunches. Last year, it opened new shops and made a net profit of 1.2 million hryvnias ($200 million).

Beleva expects a loss for this year and says she may have to make as many as one in five of her 340-strong staff redundant.

"I hope banks will understand that if you slaughter the cow it will no longer give you milk," she said.


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