Currency fall reflects Ukraine's woes - The Wall Street Journal

11:42, 04 December 2008
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Ukraine`s currency spiraled to a new low

Ukraine`s currency spiraled to a new low Wednesday as data showed the country`s population ditching the hryvnia in favor of the dollar faster than ever.

The former Soviet republic is entering a full-blown economic and financial crisis as global demand for steel, its main export, collapses, while Russia continues to threaten it with an ever-higher bill for its gas imports. Confidence in the politically divided government`s crisis plan, which is backed by a $16.5 billion loan from the International Monetary Fund, is fading.

November data released by the National Bank of Ukraine showed it had already hemorrhaged almost 80% of the first part of the emergency IMF loan within a month of receiving it. The National Bank`s gross foreign reserves rose by only $820 million in the month to $32.74 billion, despite its receiving $4.5 billion from the IMF through a hastily arranged stand-by arrangement.

The central bank also said it spent $3.4 billion in foreign-exchange interventions in the course of the month to prop up the currency. From a peak of 4.50 to the U.S. dollar this spring, the hryvnia has lost more than 60%. The dollar surged to 7.51 hryvnia on the interbank market Wednesday, above the central bank`s official rate of 7.23.

The atmosphere at the country`s exchange booths has become increasingly tense in recent weeks, with many running out of foreign currency, first due to the refusal of banks to comply with new central-bank regulations and then due to the sheer weight of demand. Net purchases of dollars by the population more than doubled last month to $2.3 billion from $930 million in October.

Panic was further stoked by media reports earlier this week that President Viktor Yushchenko, onetime hero of the 2004 Orange Revolution, was preparing a decree ordering the forced conversion of the population`s dollar deposits into hryvnia. Mr. Yushchenko denied the reports as "nonsense" Wednesday, vowing he wouldn`t intervene in the central bank`s monetary policy.

However, his spokeswoman, Irina Vannikova, had told a briefing earlier this week that Mr. Yushchenko would take "extreme measures" against the NBU if it failed to bring the currency crisis under control. Her comments were widely taken at the time as a veiled threat to sack the central-bank`s chairman, Volodymyr Stelmakh.

The Wall Street Journal

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