Hryvnia soars as Ukraine revises budget

13:54, 04 March 2009
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 To meet IMF loan terms

Ukraine’s hryvnia climbed the most in more than two months against the dollar as the government announced budget changes to comply with the terms for a second payment of an International Monetary Fund loan, Bloomberg reported.

The currency jumped 6.5 percent to 7.8500 per dollar by 12:47 p.m. in Kyiv, the biggest gain since Dec. 29 and the highest level in 1 1/2 weeks. It climbed as much as 7 percent to 9.8094 per euro, the strongest advance since Jan. 19.

Ukraine turned to the IMF for a $16.4 billion bailout last year to avert a default and stabilize its banking system. The former Soviet republic got the first $4.5 billion payment in November before approving a budget deficit of 5 percent of gross domestic product that put the second tranche of $1.9 billion in jeopardy. The IMF had demanded a balanced budget.

“The progress being made between the prime minister and the president has done a lot to soothe people’s minds when it comes to the second tranche of the IMF loan,” said Ozgur Yasar Guyuldar, an emerging-markets strategist in Vienna at Raiffeisen Centrobank. “They’re seeing some positive news flow for once.”

President Viktor Yushchenko announced the budget review on March 2 after a meeting with Prime Minister Yulia Timoshenko, the central bank chief and leader of the opposition. The IMF, set to return to the former Soviet republic in the next few weeks to discuss further payments, has praised efforts by the leaders to bury political differences and draft a recovery plan.

Ukraine is facing a 5 percent economic contraction after nine years of expansion and struggling to finance a $12.3 billion current-account deficit, according to government data.

Job Losses

Unemployment rose to 3.2 percent in January and industrial production tumbled 34.1 percent, the sharpest drop since the country regained independence in 1991. The PFTS stock index has dropped 33 percent this year, as steel makers including Yenakyivsky Metalurhiyny Zavod cut production.

The economic crisis has been aggravated by power struggles between Timoshenko and Yushchenko, hampering efforts to revive growth and cut budget spending.

The two leaders of 2004’s Orange Revolution that overthrew a pro-Russian government have clashed over economic policy and relations with Russia.

The renewed cooperation is “very encouraging,” said Ceyla Pazarbasioglu, chief of the IMF’s mission to Kyiv

The hryvnia has slumped 40 percent versus the dollar over the past six months. The Natsionalnyi Bank Ukrainy has sold foreign currency to prop up the hryvnia on a “daily basis,” Serhiy Kruhlik, head of the bank’s external relations, said in an interview from Kyiv.

Bloomberg

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