"THE ACTION UKRAINE REPORT - AUR"
An International Newsletter
In-Depth Ukrainian News, Analysis, and Commentary
"The Art of Ukrainian History, Culture, Arts, Business, Religion,
Sports, Government, and Politics, in Ukraine and Around the World"
MONETARY POLICY ADJUSTMENT CAUSES ALARM, CRITICISM
AND SUPPORT CONCERNING ABRUPT AND SHARP
CHANGE OF HRYVNIA RATE BY NATIONAL BANK OF UKRAINE
$ DEPOSITORS IN UKRAINIAN BANKS LOST 1.2 BILLION HRYVNIAS
Association of Ukrainian Banks says due to abrupt revaluation of Hryvnia
"The radical hryvnia appreciation, which suspiciously coincided with the
settlement of the pricing conflict between the cabinet and the oil traders,
has harmed the Ukrainian middle class, the very economic group that
brought President Viktor Yushchenko to power last December. And the
hryvnia's sudden appreciation has undermined many Ukrainians' trust in
their government's economic policy." [article ten]
"THE ACTION UKRAINE REPORT - AUR" - Number 471
E. Morgan Williams, Publisher and Editor
morganw@patriot.net, ArtUkraine.com@starpower.net
Washington, D.C. and Kyiv, Ukraine, WEDNESDAY, April 27, 2005
------INDEX OF ARTICLES------
"Major International News Headlines and Articles"
1. UKRAINIAN PRESIDENT NEGATIVELY EVALUATES ABRUPT
CHANGE OF HRYVNIA RATE
Ukrinform, Kyiv, Ukraine, Tuesday, April 26, 2005
2. UKRAINE: ECONOMY MINISTER CRITICIZES NATIONAL BANK
FOR SHARP STRENGTHENING OF HRYVNIA
"I think the NBU does not understand what it is doing," he said.
Interfax-Ukraine, Kyiv, Ukraine, Friday, April 22, 2005
3. YULIA TYMOSHENKO BELIEVES NBU EXCHANGE RATE AT 5.05
UAH VERSUS 1 USD CORRESPONDS TO REAL STATE OF AFFAIRS
Oleksandr Khorolsky, Ukrinform, Kyiv, Ukraine, Thu, April 21, 2005
4. NBU BEGAN APPRECIATION OF NATIONAL CURRENCY
By Andrey Voltornist, Financial Analyst
IntelliNews - Ukraine This Week
Kyiv, Ukraine, Mon, April 25, 2005
5. UKRAINE CENTRAL BANK DEFENDS STRENGTHENING HRYVNA
AGAINST DOLLAR WITH LAWMAKERS
Associated Press, Kiev, Ukraine, Fri, April 22, 2005
6. FINANCE MINISTER PINZENYK SPEAKS ON HRYVNIA RATE
Interfax-Ukraine, Kyiv, Ukraine, Friday, April 22, 2005
7. HRYVNHIA STRENGTHING POLICY DIRECTED AGAINST EXPORT-
ORIENTED MINING AND STEEL INDUSTRY
"Major blow to exporters, 60 percent of the GDP structure is export."
Interfax-Ukraine, Kyiv, Ukraine, Friday, April 22, 2005
8. FORMER NBU GOVERNOR SERHIY TIHIPKO CRITICIZING SUDDEN
FIX-UP OF HRYVNIA, BUT MAKES NO DRAMA
Interfax-Ukraine, Kyiv, Ukraine, Monday, April 25, 2005
9. IMF POSITIVELY APPRAISES STRENGTHENING OF HRYVNIA
Ukrainian News Agency, Kyiv, Ukraine, Tue, April 26, 2005
10. DEPOSITORS OF UKRAINIAN BANKS LOST 1.2 BILLION HRYVNIAS
Due to Abrupt Revaluation of Hryvnia
UNIAN, Kyiv, Ukraine, Tue, April 26, 2005
11. UKRAINE STRENGTHENS CURRENCY,
RUSSIAN OIL COMPANIES BENEFIT MOST
Middle class suffers when Kyiv raises hryvnia value
ANALYSIS: By Oleg Varfolomeyev, Eurasia Daily Monitor
Vol. 2, Issue 80, The Jamestown Foundation
Washington, D.C., Monday, April 25, 2005
12. MACROECONONMIC FORECASTS OF UKRAINIAN GOVERNMENT
FOR 2005 TOO OPTIMISTIC, EXPERTS SAY
Interfax -Ukraine, Kyiv, Ukraine, Tuesday, April 26, 2005
13. YUSHCHENKO EXPECTS CABINET TO STEP UP ECONOMIC GROWTH
President: "It is high time not to cut the economic pie, but to enlarge it."
Ukrainian News Agency, Kyiv, Ukraikne, Tue, April 26, 2005
14.US SENATE ENDORSES BILL ON URGENT ADDITIONAL ALLOCATIONS,
PROVIDES FOR 60 M. USD FINANCIAL AID TO UKRAINE
Ukrinform, Kyiv, Ukraine, Friday, April 22, 2005
15. EXIMBANK OF USA MAY INCREASE UKREXIMBANK'S
CREDIT LINE FROM $50 MILLION TO $200 MILLION
Interfax-Ukraine, Kyiv, Ukraine, Monday, April 25, 2005
16. JUSTICE MINISTER ZVARYCH BELIEVES ECONOMIC CODE
OF UKRAINE MUST BE WIPED OUT
UNIAN, Kyiv, Ukraine, Monday, 25 April, 2005
17. POLISH INVESTORS TO PRESS FOR REIMBURSEMENT FROM
UKRAINE SHOULD PRIVILEGES FOR SPECIAL ECONOMIC
ZONES (SEZ) BE CANCELLED
Ukraine suddenly wants to change the rules of the game
and violate previous agreements causing investors much alarm
UNIAN, Kyiv, Ukraine, Tue, April 26, 2005
18. RETURN TO THE SOURCE:
10th Annual Folk Art and Culture Tour of Ukraine
August 8-23, 2005, With Folk Art Specialist Orysia Tracz
Folk Art and Culture Tour of Ukraine, Orysia Tracz
Winnipeg, Manitoba Canada, Tuesday, April 26, 2005
19. ORANGE REVOLUTION CD AVAILABLE
----- Original Message -----
From: Tamara Koszarny, tkoszarny@hotmail.com
To: Morgan Williams, morganw@patriot.net
Sent: Friday, April 22, 2005,
Subject: Orange Revolution CD
20. UKRAINE HOPES DONOR COUNTRIES WILL GRANT $300 MILLION
MORE FOR CHORNOBYL SHELTER FACILITY IN LONDON ON MAY 12
Ukrainian News Agency, Kyiv, Ukraine, Tue, April 26, 2005
21. UKRAINIAN LEADERS PAY HOMAGE TO LOST LIQUIDATORS
ON 19TH ANNIVERSARY OF CHORNOBYL DISASTER
Ukrinform, Kyiv, Ukraine, Tue, April 16, 2005
=============================================================
1. UKRAINIAN PRESIDENT NEGATIVELY EVALUATES ABRUPT
CHANGE OF HRYVNIA RATE
"I negatively evaluate any shock change of money price.."
Ukrinform, Kyiv, Ukraine, Tuesday, April 26, 2005
KYIV - President Viktor Yushchenko negatively evaluates abrupt change
of the hryvnia rate. "I negatively evaluate any shock change of money
price, since this undermines authority with regard to its stability, which
was formed during the years.
Even if the matter concerns hryvnia strengthening, it cannot be decided
within one day and by such drastic steps," he stated in an interview to
the Ukraina Moloda (Young Ukraine) newspaper, the presidential press
service told Ukrinform.
Viktor Yushchenko noted that he approves policies by the Government
and by the National Bank with regard to hryvnia strengthening, but he
believes that such activities should be accurately adjusted and
discussed.
The Head of State expects that both establishments will prepare a
document during this week on general policies, which will allow the
Government to continue to successfully pursue social policies, and for
the National Bank to maintain a stable hryvnia rate.
The hryvnia revaluation aggravates and complicates conditions of work
primarily for the national producer, the President said. He noted that
this category of business should be in the focus of the Government's
attention.
Viktor Yushchenko noted that an inflow of foreign investments to Ukraine
grows each day and "it is a tendency". In connection with this he
underscored a necessity to develop a new concept of the hryvnia rate
strengthening for the following several years, "so that primarily exporters
and the people, who save their money in dollars, should not suffer".
Answering the questions in what currency savings should be made the
President answered that he himself saves money in hryvnias on an
account in one of Ukrainian banks and he is sure that the hryvnia will
continue to be further strengthened. -30-
=============================================================
2. UKRAINE: ECONOMY MINISTER CRITICIZES NATIONAL BANK
FOR SHARP STRENGTHENING OF HRYVNIA
"I think the NBU does not understand what it is doing," he said.
Interfax-Ukraine, Kyiv, Ukraine, Friday, April 22, 2005
KYIV - Economy Minister Serhiy Teriokhin has criticized the National
Bank of Ukraine for taking action aimed at sharply strengthening the
national currency. The rate set by the NBU on Wednesday - UAH 5.05/$1
- "should have occurred in September, but not in late April," the minister
said in an interview with Interfax-Ukraine.
"This raises many challenges and may lead to a panic on the deposit
currency market, and a failure to cut off additional money that will arrive
in early May, following increased salary payments to workers in the
budget-funded sphere," Teriokhin said. "I think the NBU does not
understand what it is doing," he said.
"If this [hryvnia strengthening] has been [justified] economically, then
it's correct, if this has not been [justified], then it's bad," Teriokhin
said.According to the minister, it is good for consumers, but bad for
producers, because if hryvnia gets stronger, one can buy more import
goods for one hryvnia and their will be fewer producers interested in
exporting goods, that is, supply will grow on the domestic market.
According to the minister, consumers will win, but producers will lose,
especially those that export their products, because based on the rate
change, it is clear that for every dollar's worth of product, the producer
will receive fewer hryvnias. The minister stressed the government
would call an urgent meeting with the NBU. -30-
=============================================================
3. YULIA TYMOSHENKO BELIEVES NBU EXCHANGE RATE AT 5.05
UAH VERSUS 1 USD CORRESPONDS TO REAL STATE OF AFFAIRS
Oleksandr Khorolsky, Ukrinform, Kyiv, Ukraine, Thu, April 21, 2005
KYIV - The hryvnia exchange rate versus US dollar set by the National
Bank at present at 5.05 UAH/1 USD corresponds to the real state of
affairs, Prime Minister Yulia Tymoshenko underscored by way of
answering journalists' questions. "The National Bank removed all
restrictions, which artificially maintained the hryvnia's understated
exchange rate, and we saw hryvnia's real exchange rate", the
Head of Government underscored.
Speaking about lowering the hryvnia exchange rate, Yulia Tymoshenko
expressed satisfaction that the hryvnia price is "strengthened jointly with
power in Ukraine". In her opinion, such an exchange rate fluctuation is
positive for the Ukrainian domestic market. "This will be reflected in
reduction of prices for imported goods and will have a positive influence
on the market as a whole", the Prime Minister noted.
At the same time, according to Yulia Tymoshenko, strengthening of the
hryvnia exchange rate will not be a sensible loss for exporters. "At
present, a positive situation is for exporters on the world market, and
such a change in the exchange rate will not be sensible for them ", the
Prime Minister believes. -30- [Action Ukraine Report Monitoring]
=============================================================
4. NBU BEGAN APPRECIATION OF NATIONAL CURRENCY
By Andrey Voltornist, Financial Analyst
IntelliNews - Ukraine This Week
Kyiv, Ukraine, Mon, April 25, 2005
Last week on Apr 20 NBU unexpectedly entered the interbank market and
purchased excess supply of USD at 5.05 UAH/USD exchange rate. Worth
noting, on Monday, Apr 18, NBU purchased USD at 5.22 UAH/USD and
set the official exchange rate at 5.22 UAH/USD for Apr 19. On Tuesday,
Apr 19, NBU purchased USD at that exchange rate and announced the
official exchange rate for Apr 20 at 5.19 UAH/USD.
NBU set the official exchange rate for Apr 21 at 5.05 UAH/USD. However,
on Thursday, Apr 21, NBU purchased hryvnya at 5.02 UAH/USD, but
remained the official exchange rate flat at Wednesday's level of 5.05 UAH/
USD. Worth noting, national currency strengthened 4.81% ytd as of Apr 25.
To remind you, an exchange rate was 5.3054 UAH/USD as of Jan 1, 2005.
NBU's actions were considered as a response to active purchase of
government bonds by foreign investors. Last week USD 425mn was spent
to buy Ukrainian bonds, at that 60% of the funds were of foreign origin.
NBU's attempts to keep weak national currency led to raise of liquidity on
the monetary market, which might resulted in accelerating inflation.
NBU SAYS INFLATION PRESSURE TO DECREASE
According to first deputy chairman of NBU Anatolii Shapovalov, hryvnya
appreciation will have a significant macroeconomic effect, inflation
pressure will be lessened. In our view, aggressive appreciation of hryvnya
will reduce exports and increase imports. If local prices accelerate
rapidly, consumers will preffer to by imported products rather than
domestic. Besides, there are risks that Ukraine products might become
less competative on the foreign markets. What will be if we consider
such actions as fight with inflation?
If government holds low exchenge rate, then it has to byu out excess
supply of foreign currency (USD in our case), otherwise there would not
be demand for USD and their price will decrease. Thus, NBU increases
money supply (it has to byu USD for UAH, which are emited).
If government sterilize the economy, i.e. places domestic bonds or NBU
governs discount rate, there will not be fast accelerating inflation. To
decrease inflation rate government should either influence expectations
(strong and tough national bank) or to fix prices somehow.
GOVERNMENT PLEASED BUT AFRAID OF SHARP APPRECIATION
PM Yulia Tymoshenko called hryvnya appreciation a positive impulse.
According to her, strengthen of national currency will affect imports and
positively influence inflation process. She underlined that currently
exporters observe positive situation on the foreign markets and change
in hryvnya exchange rate will not influence them.
EconMin Serhii Teriokhin expects hryvnia rate will remain unchanged
during 2005 within the limits of 5-5.05 UAH/USD. Teriokhin reminded that
an annual average 5.1 UAH/USD exchange rate is laid in the state budget
for 2005. However, Teriokhin noted that too sharp hryvnya appreciation
may affect negatively and give grounds for expectation for further
revaluation on the market.
ASSN OF UKRAINIAN BANKS DOES NOT LIKE NBU'S ACTIONS
On Apr 22, Association of Ukrainian Banks criticized the decision to
sharply strengthen the hryvnia. Currency dealers for commercial banks
also do not like NBU's actions. Local experts forecast an exchange rate
of about 5 UAH/USD in H1.
3-4% APPRECIATION TO HAVE LIMITED EFFECT ON INFLATION
Lars Christensen, senior analyst of Danske Bank, commenting NBU's
action noticed that an appreciation of 3-4% will only have a very limited
effect on inflation. In fact, he believes that an appreciation of 15% is
needed to bring inflation below 10% this year.
APPRECIATION SHOULD NEVER BE SHARP
Summing up, we must outline that quick hryvnya appreciation will
decrease competitiveness of Ukrainian goods as they will cost higher,
while quality remains the same. Thus, the exports will decrease and
the imports will increase.
As a result, local consumers will prefer imported goods to local goods.
Demand will fall and consequently investments in manufacture will
decrease. In the long term, obviously, growth rate of the economy will
slow down.
Artificial depreciation of national currency, on the other hand, helps to
boost local economy (that is what can be observed in Russia and China).
However, one should not forget about consumers. Surely, households
will gain in the short-run from hryvnya appreciation as they become
wealthier. Still in the long term consumers may loose as their income
depends on development of the local economy.
We believe, hryvnya is undervalued. To remind you, over Jan-Feb
Ukraine's trade balance surplus increased 2-fold y/y to USD 917.1mn.
Significant economic growth in Ukraine observed in 2004 and high world
demand for Ukrainian steel and chemicals (two main items of export)
can be observed.
As a result, local market has excess of foreign currency, which in turn
led to NBU's action. However, we do not believe, NBU will continue
rapid appreciation of hryvnya, but it is obvious that hryvnya will
strengthen further. -30- [Action Ukraine Report Monitoring Service]
=============================================================
5. UKRAINE CENTRAL BANK DEFENDS STRENGTHENING HRYVNA
AGAINST DOLLAR WITH LAWMAKERS
Associated Press, Kiev, Ukraine, Fri, April 22, 2005
KIEV - In a heated exchange with lawmakers, the head of Ukraine 's National
Bank Friday defended his decision to strengthen the national currency
against the dollar. The bank Thursday set the hryvna's exchange rate against
the dollar 2.7% higher at 5.05 hryvna, compared with 5.25 hryvna a day
earlier. The move means that every dollar buys fewer hryvnas.
Ukrainians, who mostly keep their money in dollar savings, called the move
outright theft. Exporters complained it could drive them into bankruptcy.
"Strengthening the national currency is only for the welfare of the
Ukrainian people," National Bank head Volodymyr Stelmakh told lawmakers.
President Viktor Yushchenko's government had also warned earlier that it
planned to strengthen the hryvna in an effort to fight double-digit
inflation.
Lawmaker Nestor Shufrych, a member of the opposition Social Democratic
Party (United), criticized the bank's move, saying now Ukraine 's currency
exchange "is floating in the air, with no ground to support it."
Finance Minister Viktor Pinzenyk, who also addressed parliament, insisted
that raising the hryvna was "an inevitable anti-inflationary process."
Ukraine 's double-digit inflation rate has been increasing, and the new
government has had to revise its inflationary forecast upward.
Bringing the exchange rate to its lowest level since 1999 caused grumbling
among Ukrainians, who have already had to cope with rising meat and
gasoline prices since the new government came to power. The bank had
initially planned to lower the rate to 5.02 Friday, but it remained set at
5.05 hryvna to the dollar. -30-
=============================================================
6. FINANCE MINISTER PINZENYK SPEAKS ON HRYVNIA RATE
Interfax-Ukraine, Kyiv, Ukraine, Friday, April 22, 2005
KYIV - Ukrainian Finance Minister Viktor Pinzenyk says the hryvnia
exchange rate may be maintained at UAH 5.05/$1. "UAH 5.05/$1 is
an exchange rate that we can keep to," he told the Verkhovna
Rada on Friday.
In his opinion, the hryvnia was essentially undervalued in recent years,
and this had caused emissions of money by the NBU to purchase
hard currency on the interbank to be too high.
The hryvnia's strengthening, he said, is a positive factor, as it curbs
inflation and low inflation will stimulate Ukraine's companies better than
an artificial under-valuation of the hryvnia.
The NBU has purchased $3.896 billion this year, and that has dramatically
increased the money supply. If the money supply continued to grow at the
same speed, inflation would higher that planned in the national budget, he
said.
He said the hryvnia revaluation would not cause difficulties with the
execution of the national budget, as current revenues to the budget are
much higher compared with the same period of 2004. He said exports
grew by 13% in January-February and imports grew by 14%, whereas
the budget plans that exports would grow by 10.4% and imports by 17.8%.
"Revenues to the national budget are growing faster than exports," he said.
At the same time, he said he would rather that the NBU discussed the terms
of such exchange rate changes -30-
=============================================================
7. HRYVNHIA STRENGTHING POLICY DIRECTED AGAINST EXPORT-
ORIENTED MINING AND STEEL INDUSTRY
"Major blow to exporters, 60 percent of the GDP structure is export."
Interfax-Ukraine, Kyiv, Ukraine, Friday, April 22, 2005
KYIV - Representatives of Ukraine's mining and metallurgical enterprises
say the National Bank of Ukraine's policy to sharply strengthen the hryvnia
is directed against export-oriented metallurgical and mining enterprises.
According to the director general of the Alchevsk Metallurgical Mill in
Luhansk region, Taras Shevchenko, "the situation of the hryvnia
strengthening is government policy executed by the NBU, [and] these are
actions against export-oriented enterprises of the mining and metallurgical
complex."
The mill's director general said the tendency might result in businessmen
losing interest in the sector: "This is a road to nowhere."
Director general of CJSC ARS (Donetsk), one of Ukraine's leading coke
producers, Vasyl Mykulin, also says the tendencies on the country's
currency market are "a catastrophe for exporters." "They lay inputs at one
currency rate, and while selling products the rate changes and we have a
rate difference not in favor of exporters," the expert said, adding that
under this situation mainly metallurgical enterprise will incur losses.
A representative of Kryvorizhstal steel mill said that hryvnia's
strengthening will worsen the competitiveness of Ukrainian metal products
on foreign markets. "The same situation was seen when the euro
strengthened - it was more profitable to buy American products than
European ones," the expert said.
MP Serhiy Matviyenkov, a member of the parliamentary committee on
industrial policy and entrepreneurship issues, also believes that the
situation under the current conditions will worsen. "It's a major blow to
exporters, and 60 percent of the GDP structure is export." -30-
=============================================================
8. FORMER NBU GOVERNOR SERHIY TIHIPKO CRITICIZING SUDDEN
FIX-UP OF HRYVNIA, BUT MAKES NO DRAMA
Interfax-Ukraine, Kyiv, Ukraine, Monday, April 25, 2005
KYIV - Former governor of the National Bank of Ukraine Serhiy Tihipko
believes the sudden strengthening of the hryvnia exchange rate against the
dollar is unreasonable, but makes no drama out of the current situation. "I
believe such harsh steps should not be made by the NBU, though I would
not dramatize the situation today," he told journalists after the eighth
assembly of the Labor Ukraine Party in Kyiv on April 23.
He also noted "this will be positive for price keeping, as well as for
import." At the same time it can affect export, he said. In his words, the
recent economic growth in Ukraine "has been based on exporters and
export." "I am afraid such harsh steps can result in exporters losing their
competitiveness in foreign markets," he noted.
He also stressed the situation with the hryvnia strengthening "should not be
dramatized because this may push people to commercial banks to pick up
their money or transfer them into other currencies." He also stressed that
today "the only important thing is not to make any harsh steps."
"Everything goes fine, the economic growth is sufficient, therefore nothing
drastic should be done, everything should go smooth," he believes. -30-
==============================================================
9. IMF POSITIVELY APPRAISES STRENGTHENING OF HRYVNIA
Ukrainian News Agency, Kyiv, Ukraine, Tue, April 26, 2005
KYIV - The International Monetary Fund has positively appraised the
strengthening of Ukraine's hryvnia national currency. The IMF's Resident
Representative Office in Ukraine announced this in a statement, citing the
IMF's senior resident representative in Ukraine Jeffrey Franks.
'We welcome the recent steps by the National Bank of Ukraine aimed at
ensuring a more volatile exchange rate of the hryvnia...' the Resident
Representative Office quotes Franks as saying.
'Reestablishing control over inflation is the most important macroeconomic
challenge facing Ukraine in the short-term future. The strengthening of the
national currency will make its contribution to reduction of the
inflationary pressure,' the statement further says.
According to Franks, preservation of the projected budget deficit will also
play an important role in reducing the inflationary pressure caused by the
sharp increase in pensions and wages in the state sector.
As Ukrainian News earlier reported, President Viktor Yuschenko has
expressed the belief that the policy of strengthening the hryvnia national
currency that the National Bank of Ukraine and the Cabinet of Ministers
are implementing has raised the hryvnia's value too sharply.
The National Bank of Ukraine says that it intends to continue strengthening
the hryvnia. The NBU's Chairman Volodymyr Stelmakh has said that the
strengthening of the hryvnia was aimed at minimizing inflation.
The World Bank has also said that it considers the strengthening of the
hryvnia as a sign of stability and growth of the Ukrainian economy.
The cash exchange rate of the dollar fell to 4.90/5.20 UAH/USD at currency
exchange bureaus on April 21 following the National Bank of Ukraine's April
20 decision to officially strengthen the hryvnia by 14.0 kopecks to 5.05
UAH/USD. The hryvnia has risen by 5.38% from 5.3056 UAH/USD to 5.0200
UAH/USD on the interbank currency market since the start of this year.
==============================================================
10. DEPOSITORS OF UKRAINIAN BANKS LOST 1.2 BILLION HRYVNIAS
Due to Abrupt Revaluation of Hryvnia
UNIAN, Kyiv, Ukraine, Tue, April 26, 2005
KYIV - As a result of the abrupt revaluation of hryvnia, depositors of
Ukrainian banks, who saved their money in US dollars, lost 1.2 billion
hryvnias. The President of the Association of Ukrainian Bank Oleksander
Suhoniako claimed at a press conference today. According to an UNIAN
correspondent, he stressed: “on every thousand dollars Ukrainians lost
300 hryvnias”.
On the whole, he has noted that the banking system negatively assesses
such an abrupt strengthening hryvnia to dollar. “We assess it as a
destabilization of the currency market and the banking system as a whole”,
said he.
In addition, the association is confident that this step of the National
Bank has negatively influenced the activities of national producers, having
reduced their competitiveness. According to him, the abrupt revaluation of
the national currency has resulted in devaluation of currency assets, making
some 40% of the total assets of the banking system.
==============================================================
11. UKRAINE STRENGTHENS CURRENCY,
RUSSIAN OIL COMPANIES BENEFIT MOST
Middle class suffers when Kyiv raises hryvnia value
ANALYSIS: By Oleg Varfolomeyev, Eurasia Daily Monitor
Vol. 2, Issue 80, Jamestown Foundation
Washington, D.C., Monday, April 25, 2005
On April 23 Ukrainian Prime Minister Yulia Tymoshenko claimed a victory over
Russian oil companies, saying they had agreed to her cabinet's demands to
lower gasoline prices in Ukraine. But the reality is more complicated. Gas
prices were lowered via a steep hike in currency rates, so the dollar
equivalent of a liter of gas in retail networks has remained the same,
meaning that the Russians did not lose. But exporters, banks, and the middle
class did. This was a defeat, not a victory for the Ukrainian government.
When oil prices grew on international markets last year, they hardly changed
in Ukraine. Russian oil companies, which control more than 80% of Ukraine's
market, had agreed to freeze prices until after the presidential election in
order to support the pro-Moscow government of Viktor Yanukovych. But when
Yanukovych lost the election, the oil traders were no longer bound by any
obligations. During March and April prices at Ukraine's gasoline stations
grew by more than 10%.
On April 9 Prime Minister Tymoshenko accused the Russian oil traders of
price collusion and urged them to roll back prices. Her appeal fell on deaf
ears and on April 14 Tymoshenko's cabinet introduced prices caps on
petroleum products, forcing gas stations to bring their prices back to
late-March levels.
The traders, including TNK-BP and Lukoil, complained to Russian Prime
Minister Mikhail Fradkov, and TNK-BP suspended gas sales through its
network. In response Ukraine's Anti-Monopoly Committee threatened the
Russians with a fine for price collusion. The Russian companies refused to
back down, and on April 20, Tymoshenko complained that they had the
government "by the throat."
But circumstances changed last week. On Wednesday April 20 Tymoshenko
reached a price agreement with TNK-BP, and a similar accord was signed with
Lukoil president Vagit Alekperov one day later. The Russians agreed with
Kyiv's price caps, and Tymoshenko claimed credit for breaking the deadlock.
A beaming Tymoshenko told a press conference on April 23 that she had
personally checked gas stations in Kyiv to confirm that they were charging
the government rate.
The reality, however, is that the oil traders did not back down an inch,
with gas retailing around the same $0.60 per liter. But hryvnia-denominated
price tags are now indeed in line with Tymoshenko's orders. This is because
the National Bank of Ukraine (NBU) suddenly appreciated the hryvnia by a
whopping 3% on April 20, hiking it to 5.05 hryvnias per dollar.
The currency appreciation made middle-class Ukrainians, who traditionally
earn salaries and save in dollars, poorer overnight. "I think the NBU does
not understand what it is doing," Economics Minister Serhiy Teryokhin, a
Western-educated market liberal, told journalists on April 21. And the
leader of the Association of Ukrainian Banks, Oleksandr Suhonyako, called
the government's actions "unprofessional." Tymoshenko, however,
proclaimed that the hryvnia was "strengthening along with the strengthening
of the Ukrainian government."
Parliament ordered NBU head Volodymyr Stelmakh and Finance Minister
Viktor Pynzenyk to explain the situation. They replied on April 22 that the
hryvnia's appreciation is natural, as it had long been pegged to the dollar
at an artificially low rate in order to support exports and maintain
currency stability.
The NBU has had to regularly buy up the growing domestic surplus of
dollars, and if it continued to do so, inflation would be too high, they
said.
Stelmakh and Pynzenyk, however, failed to explain why the NBU, instead of
appreciating the hryvnia gradually to the cabinet's target of 5.1 hryvnias
per dollar for 2005, devalued the dollar in a single day. Stelmakh also
conceded that a very strong hryvnia might harm the domestic economy.
The suddenly stronger hryvnia made middle-class Ukrainians, who are
estimated to keep at least $10 billion in cash, poorer by about $250-300
million, according to Zerkalo nedeli. Exporters also lost considerably. And
it is doubtful that importers will benefit much from a stronger hryvnia, as
Stelmakh told parliament. Imports have been growing recently because the
main consumers of imports -- Ukraine's middle class -- have been spending.
But having lost on the dollar devaluation, the middle class will have to
tighten their belts.
The oil companies working in Ukraine, most of which are Russian-controlled,
have bested the Tymoshenko cabinet, no matter what Tymoshenko may say.
The radical hryvnia appreciation, which suspiciously coincided with the
settlement of the pricing conflict between the cabinet and the oil traders,
has harmed the Ukrainian middle class, the very economic group that
brought President Viktor Yushchenko to power last December. And the
hryvnia's sudden appreciation has undermined many Ukrainians' trust in
their government's economic policy. -30-
------------------------------------------------------------------------------------------------------
Channel 5, April 16, 19-23; Interfax-Ukraine, April 18, 21; Zerkalo nedeli,
April 23. LINK: http://www.jamestown.org
==============================================================
12. MACROECONONMIC FORECASTS OF UKRAINIAN GOVERNMENT
FOR 2005 TOO OPTIMISTIC, EXPERTS SAY
Interfax -Ukraine, Kyiv, Ukraine, Tuesday, April 26, 2005
KYIV - Macroeconomic forecasts of the Ukrainian government are too
optimistic, Francis O'Donnell, UN Resident Coordinator and UNDP
Resident Representative in Ukraine, said at a press conference in
Kyiv on Tuesday. "We believe the economic forecasts are too optimistic,"
he said commenting on the results of a three-day forum of Ukrainian and
foreign experts on the issue of reforms in Ukraine.
He pointed out that GDP growth had slowed in the first quarter, whereas
payments of pensions accounts for 16 percent of the GDP this year on
the background of the unfavorable demographic situation. The forum
participants said the macroeconomic forecasts of the government should
depend more on the plans of the government in fiscal policy and structural
reforms.
Experts called on the government for increased transparency in decision-
making. The experts also urged the government to settle the issue
of privatization and re-privatization and to accelerate court and
administrative reforms. Commenting on the transparency of the new
government he said: "Sometimes it seems that there is less information
than with the former government."
Experts say that uncertainty with the issue of the result of privatization
is essentially impeding inflows of foreign investment in Ukraine. Experts
would rather that the problem be settled as soon as possible, he said. As
he said, experts also advised the Ukrainian authorities to review the course
of the constitutional reform and possibly to return to the beginning of the
discussion on the issue, so that the reform protected interests of
Ukrainians more effectively.
In his opinion, Ukraine's way to EU membership may take years, but the
way will be shorter than in the case of countries that joined the EU last
year. As for Ukraine's prospects for entry in the WTO, he said the
government is capable to complete all necessary work by the end
of this year. -30- [The Action Ukraine Report Monitoring Service]
=============================================================
13. YUSHCHENKO EXPECTS CABINET TO STEP UP ECONOMIC GROWTH
President: "It is high time not to cut the economic pie, but to enlarge it."
Ukrainian News Agency, Kyiv, Ukraikne, Tue, April 26, 2005
KYIV - President Viktor Yuschenko expects the government to boost
the economic growth pace and provide secure mechanisms for it.
He announced this at an all-Ukrainian meeting of representative of local
self-government.
"I hope the Cabinet of Ministers is fully aware and ready to give a right
solution and effective steps in this direction," the president said.
He sees the necessity to form mechanisms that would back the economic
growth needed to protect the rights of Ukrainians and give them the
European life standards. "It is high time not to cut the economic pie, but
to enlarge it," the president said.
Yuschenko believes that one of the methods that would guarantee the
economic growth will be a change in the system of power and state
management. Among the negative signs in the economy, he mentioned
a 4.4% inflation rate in January-March and an economic growth slowdown.
The president added that budget has almost exhausted its capacity for
further increment of social payments. "The current budget capacities for
further expansion of social programs are almost exhausted. The sum of
pension payments totals 16% to GDP. It is a world record," he said.
As an example of poor results, he pointed out to the structure of citizens'
incomes in which the share of social payments is higher than that of a wage.
As Ukrainian News earlier reported, Yuschenko criticized the Ministry of
Finance, the Ministry of Economy and the National Bank for poor control of
inflation in January-March. According to the State Statistics Committee,
consumer prices grew by 1.6% in March, by 1% in February, and by 1.7%
in January. Inflation tallied 4.4% since the beginning of the year.
=============================================================
14. US SENATE ENDORSES BILL ON URGENT ADDITIONAL ALLOCATIONS,
PROVIDES FOR RENDERING 60 M. USD FINANCIAL AID TO UKRAINE
Ukrinform, Kyiv, Ukraine, Friday, April 22, 2005
WASHINGTON, DC - The US Senate unanimously endorsed a bill on
urgent additional outlays, which, in particular, provides for allocating 60
million dollars to render financial aid to Ukraine. The Senate
Appropriations Committee had supported the bill.
The bill, which the Senate endorsed on Thursday is the Senate's version
of responding to President George Bush's request for additionally allocating
81.9 bn. USD, which George Bush sent to the Congress on February 14.
Shortly the Senate-approved bill will be adjusted with regard to the House's
bill to the same effect, following which the resultant document will be sent
to President Bush for signing in early May. -30-
=============================================================
15. EXIMBANK OF USA MAY INCREASE STATE EXPORT-IMPORT BANK
OF UKRAINE'S CREDIT LINE FROM $50 MILLION TO $200 MILLION
Interfax-Ukraine, Kyiv, Ukraine, Monday, April 25, 2005
KYIV - The Eximbank of USA may increase the credit line of the State
Export-Import Bank of Ukraine, also known as Ukreximbank, from $50
million to $200 million.
Ukreximbank Governor Viktor Kapustin made a statement to that effect
following a meeting with President of the U.S. Eximbank Philip Merrill.
"It is most likely that in June the first vice-president of the U.S.
Eximbank will arrive in Kyiv and, if we've used some money, in May we'll
have to use $15- 20 million as there are many projects, the sum may grow
by $150 million more, and this is a rather high figure," Kapustin said in an
interview with the Profil weekly.
In his words, the point at issue is the sum of loans, which can be set aside
by the U.S. Eximbank to Ukreximbank under the bank-to-bank line without
state guarantees. Moreover, he said, Ukreximbank is planning to develop
a project for export lending, including long-term ones, in cooperation with
the World Bank. "First of all, [it is] machine-building. This construction
needs several years, and we could finance it, earning profit due to money
from sales.
This direction will be actively developing. We are strenuously working with
the World Bank over a program for the development of export. They are
earmarking up to $200 million. We hope to start work under this program
as soon as in autumn, being occupied with lending under separate
projects," he said. -30- [The Action Ukraine Report Monitoring Service]
=============================================================
16. JUSTICE MINISTER ZVARYCH BELIEVES ECONOMIC CODE
OF UKRAINE MUST BE WIPED OUT
UNIAN, Kyiv, Ukraine, Monday, 25 April, 2005
KYIV - Justice Minister of Ukraine Roman Zvarych claims that the Ministry
is absolutely confident that the Economic Code of Ukraine must be wiped
out.
According to an UNIAN correspondent, he has claimed this today during
the Strategic Seminar for Reforms in Ukraine, within the networks of which
Ukrainian government officials have met with a group a leading international
experts.
"The Ministry of Justice is absolutely confident that the Economic Code of
Ukraine must be wiped out over the incorporation of separate its provisions
with the Civic Code, which will allow us to codify in a single legal act
almost all legal civic relations" except of family ones, as these issues are
regulated by another code, said R.Zvarych.
The Minister has stressed the necessity of a more precise legal regulation
of the procedure of bankruptcy. According to R.Zvarych, a significant part
of court decisions are not fulfilled, as courts cannot clearly rule on
bankruptcy.
He has added that it is necessary to more clearly define the activities of
business structures of all forms of ownership, as the Ukrainian legislation
contains many conflict aspects in this sphere.
R.Zvarych has stressed that the Procedural Criminal Code, adopted in the
first reading, does not comply with democratic standards. He has said that
the Ministry has been working with profile committees of the Verkhovna
Rada to democratize this code. -30-
-----------------------------------------------------------------------------------------------------
FOOTNOTE: Most business and legal analysts who we are in touch
with agree totally that the economic code in Ukraine must be wiped
out. The code was written in the past by people in Ukraine who did
not believe in a private economy and private business. The major concern
these experts have is about when Ukraine will quit talking about doing
this and actually do it. They believe this needs to be done sooner rather
than later to improve the climate for business investments. [EDITOR]
=============================================================
17. POLISH INVESTORS TO PRESS FOR REIMBURSEMENT FROM
UKRAINE SHOULD PRIVILEGES FOR SPECIAL ECONOMIC
ZONES (SEZ) BE CANCELLED
Ukraine suddenly wants to change the rules of the game
and violate previous agreements causing investors much alarm
UNIAN, Kyiv, Ukraine, Tue, April 26, 2005
KYIV - Polish businessmen, who invested money into the special economic
zones of Ukraine (SEZ), will press for a reimbursement from Ukraine in
courts, should the proposal of Yulia Tymoshenko's government on the
abolishment of investment privileges come in force, according to RFE/RL
Ukrainian service.
The Polish investors have been disappointed with the proposal of the
Ukrainian government of 31 March, in line with which SEZ privileges may be
cancelled. Critics of these economics zones are confident that by means of
SEZ businessmen avoid paying taxes and conduct shadow transactions.
Officially, the Ukrainian government proposes to cancel privileges to
increase receipts in the state budget.
Some 70 Polish firms are operating in the Ukrainian special economic zones,
the first of which was set up as early as 10 years ago. The majority of
them – 40 – are situated in the Lviv Oblast. By the estimate of the Polish
Ministry of Economics, Polish businessmen invested in Ukraine some 150
million dollars.
This year they were about to increase their investments in Ukraine by
another 100 million dollars. However, due to the abolishment of privileges
in SEZ, the Polish businessmen will hardly do this.
The decision of the Ukrainian government was a surprise also for Polish
Prime Minister Marek Belka. “I do not know the status of this decision,
whether the Ukrainian government provides a remuneration for the violation
of the previous agreement”, said he.
The Polish Ministry of Economics understands that this move of the
Ukrainian government may have been caused with the desire of Ukraine
to enter WTO as soon as possible, but it cannot agree with the methods
of the Ukrainian party. -30-
=============================================================
18. RETURN TO THE SOURCE:
10th Annual Folk Art and Culture Tour of Ukraine
August 8-23, 2005, With Folk Art Specialist Orysia Tracz
Folk Art and Culture Tour of Ukraine, Orysia Tracz
Winnipeg, Manitoba Canada, Tuesday, April 26, 2005
WINNIPEG - 10th annual tour. Museums, walking tours, lectures, artists,
folk art, shopping, traditional cuisine, Ukrainian hospitality. You don't
have to be Ukrainian to enjoy the trip. Interpreting into English at all
times.
Places: Kyiv, Kaniv, Ternopil, Kam'ianets'-Podils'kyi, Kolomyia, Lviv,
Carpathian Mountains (Kosiv, Yaremche, other villages). Visits to
ancestral villages arranged. Opportunity to stay a week longer on your
own (accommodations) for the same cost. $3,650 Canadian. (includes
air, hotels, meals, museum admissions).
Connections from other North American and international cities arranged.
Limited number of participants. We have had travelers from across North
America, and Australia, and many repeat participants.
For reservations and details: Irena Zadravec, Thomas Cook - Regent
Travel, (204) 988-5100, sblair@thomascook.ca. For more information
regarding tour contact Orysia Tracz: dorohy@hotmail.com -30-
=============================================================
19. ORANGE REVOLUTION CD AVAILABLE
----- Original Message -----
From: Tamara Koszarny, tkoszarny@hotmail.com
To: Morgan Williams, morganw@patriot.net
Sent: Friday, April 22, 2005,
Subject: Orange Revolution CD
Dear Mr. Williams- I would like to know if I can let your subscribers
know that I have a multimedia for PC CD about the Orange Revolution.
This CD is one of the most extensive on the Orange Revolution. It
has 1400 photos, 45 min. of videos,and 10 hrs of audio. It also has
54 articles of documents, songs, jokes, animations and games.
It is available for $18.95 US and ordered by e-mailing me at
tkoszarny@hotmail.com. Hope that it is possible to do this.
Thank-you, Best regards, Tamara
=============================================================
20. UKRAINE HOPES DONOR COUNTRIES WILL GRANT $300 MILLION
MORE FOR CHORNOBYL SHELTER FACILITY IN LONDON ON MAY 12
Ukrainian News Agency, Kyiv, Ukraine, Tue, April 26, 2005
KIYIV - Ukraine hopes that during a May 12 meeting in London (U.K.) donor
countries will decide to grant nearly USD 300 million as additional funds
for Chornobyl fund for transformation of the Shelter facility at the closed
Chornobyl NPP into an environmentally safe system. Vice Prime Minister
for Integration into Europe Oleh Rybachuk made the statement at a press
conference.
"On May 12 donors will gather and we expect they will grant additional USD
300 million to the Chornobyl fund," Rybachuk said. He noted that today the
talks with donor countries, as well as with heads of the European Bank for
Reconstruction and Development (EBRD), which manages the fund, give
grounds to expect that the meeting will be a success for Ukraine.
Rybachuk said that he will most possible take part in the meeting of donors
personally. He also noted that now the government is taking steps to improve
management of the Shelter project and all issues connected with the
Chornobyl zone.
As Ukrainian News reported earlier, Deputy Prime Minister Mykola Tomenko
said he intends to address the Prosecutor General's Office and the Control
and Revision Department with the request that they check on the use of the
international funds provided for the efforts to be made at the Chornobyl
nuclear power plant, including its Shelter facility.
Ukraine shut down the Chornobyl nuclear power plant on December 15, 2000,
at the demand of the international community. State-run specialized
enterprise
Chornobyl NPP is engaged in the effort to withdraw the power plant from
operation and convert the shelter over the 4th reactor into an
environmentally safe facility. Earlier, donor countries granted nearly USD
750 million to the Chornobyl fund and it is expected that the donors will
decide to increase the fund to USD 1 billion.
The bill on the national budget for 2005 envisages Ukraine's contribution to
the Chornobyl Shelter fund to a sum of UAH 34.687 million. The explosion
of the Chornobyl nuclear power plant's fourth reactor in 1986 was the
world's worst nuclear accident. -30- [Action Ukraine Monitoring Service]
=============================================================
21. UKRAINIAN LEADERS PAY HOMAGE TO LOST LIQUIDATORS
ON 19TH ANNIVERSARY OF CHORNOBYL DISASTER
Ukrinform, Kyiv, Ukraine, Tue, April 16, 2005
KYIV - President Viktor Yushchenko, Verkhovna Rada Chairman Volodymyr
Lytvyn and Prime Minister Yulia Tymoshenko participated in memorable
events on the occasion of 19th anniversary of the disaster at the Chornobyl
NPP in Kyiv Darnytsia district on Tuesday, April 26.
The event was also attended by First Vice Prime Minister Anatoli Kinakh,
Vice Prime Minister Mykola Tomenko, Ukrainian Secretary of State Oleksandr
Zinchenko, Kyiv Mayor Oleksandr Omelchenko, Govt members, deputies and
the Armed Forces' representatives.
The Ukrainian leaders laid flowers at the monument to lost liquidators of
the accident, whose names have been coined on marble plates of the
memorial barrow. The memorable events were also attended by liquidator
veterans.
The accident at the Chornobyl NPP have been recognized by the world
community as the biggest man-caused catastrophe in the history. The UNO
established the date of April 26 International Day of memory of victims of
radiation accidents and catastrophes. -30-
=============================================================
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