Sunday, 2 September 2012
Ukraine's Hryvnia Plummets Amid Fear Of Govt Moves
KIEV, Ukraine -- Ukraine’s currency, the hryvnia, fell to its lowest level in 30 months on Wednesday on weakening exports and amid speculation the government may start printing money to cover the budget deficit. Government officials strongly denied any plans for monetary emission ahead of October 28 parliamentary elections, but bankers said large amount of hryvnias had flooded the forex market on Wednesday. “A lot of hryvnias have just emerged on the market,” a currency dealer with a commercial bank said Wednesday. “Demand for hard currency has accelerated.” The hryvnia closed at 8.11 to the dollar in trading between commercial banks on Wednesday compared with 8.02/dollar on Tuesday, dealers said. The developments come amid speculations the government, which is facing lack of borrowing options, may ask the National Bank of Ukraine to print hryvnias to cover budget deficit to meet social payment obligations ahead of the elections. Former President Viktor Yushchenko, who was the country’s longest serving central bank governor, said on Tuesday Ukraine may be heading towards default on massive debts payments next year. He said the government’s failure to resume borrowing from the International Monetary Fund over the past two years may force the central bank to start printing hryvnias to cover budget deficit. Economy Minister Petro Poroshenko on Wednesday denied the speculations. “I do not accept an idea that money printing may be the source of revenue for the budget,” Poroshenko said. “My principle position is that the exchange rate must be market based,” Poroshenko said. “Any preconditions for any sharp depreciation of the national currency do not exist.” The IMF suspended its $15 billion loan to Ukraine two years ago after the government had failed to stick to energy sector reform by hiking domestic natural gas prices. National Bank of Ukraine Governor Serhiy Arbuzov has repeatedly called for resuming cooperation with the IMF, while Prime Minister Mykola Azarov had been more cautious. Azarov on Tuesday also denied speculations the hryvnias has been facing downward pressure, but admitted that Ukraine’s traditional exports, steel, has been weakening, brining in less hard currency to the country. “Now, we have big problems with exports of steel, and the steel is the backbone of our economy,” Azarov said. Without the borrowing from the IMF other financial institutions, such as the World Bank, the European Bank for Reconstruction and Development and the European Investment Bank, also withhold their lending programs. “There is no reason to expect any financial assistance from these institutions,” Yushchenko said. “Only one option remains on the table: it’s the money printing tool, and this is very bad.” An IMF team arrived in Ukraine on Wednesday on a seven-day mission to check whether the government is line with its economic and fiscal policy projections.