Ukraine Seeks IMF Assistance; Deposit Insurance Raised;
S&P May Downgrade
1. UKRAINE SEEKS IMF ASSISTANCE AMID ECONOMIC CRISIS
The Associated Press, Kiev, Ukraine, Wed, October 15, 2008
2. FITCH SAYS ANY UKRAINE IMF DEAL SUPPORTS CREDITWORTHINESS
By Peter Apps, Reuters, London, UK, Wednesday October 15 2008
3. UKRAINE'S CENTRAL BANK UPS DEPOSIT INSURANCE
Reuters, Kiev, Ukraine, Wednesday, October 15 2008
4. UKRAINE, OTHER SMALL NATIONS FACE CRISIS ALONE
By Maria Danilova, Writer, Associated Press, Kiev, Ukraine, Wednesday, October 15, 2008
5. UKRAINE NEEDS TO SORT OUT ITS PROBLEMS ON ITS OWN
Editorial: International Herald Tribune, Paris, France, Tuesday, October 14, 2008
6. S&P SAYS MAY DOWNGRADE HUNGARY, UKRAINE
Reuters, New York, NY, Thursday, Oct 16 2008
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1. UKRAINE SEEKS IMF ASSISTANCE AMID ECONOMIC CRISIS
The Associated Press, Kiev, Ukraine, Wed, October 15, 2008
KIEV, Ukraine: Ukrainian authorities pumped more money into the shaken banking sector as they prepared for talks with the International Monetary Fund about getting help with the country's financial troubles.
Worried Ukrainians continued to pull money from banks, but government rescue measures appeared to have slowed the withdrawals and experts were optimistic that the country would weather the difficulties.
The government, which is also in the midst of an escalating political crisis, is struggling to support the hryvna currency in the face of the world financial meltdown, as investor money flees emerging markets and orders fall for the country's chief export commodity, steel.
The country's central bank and chief financial regulator, the National Bank, pledged 1 billion hryvna (US$200 million) to insure retail deposits and prevent a run on banks, the Interfax news agency reported. Nervous have citizens stripped the banking system US$1.3 billion dollars since the beginning of the month.
Some Ukrainians were not waiting to see how it turns out and rushed to empty their accounts. Many people lost their life savings in the 1991 collapse of the Soviet Union, of which now-independent Ukraine was once part.
"There were these rumors and I decided not to wait," said Lyudmila Kudinova, 49, who withdrew 10,000 hryvna from her account at a downtown office of the Khreshchatyk bank Wednesday and immediately converted it into US$2,000 in U.S. currency. "There is one crisis after another."
A survey of about a dozen ATMs and bank offices in downtown Kiev found no scenes of panic or long lines. Prominvest, which is being administered by the government, and Nadra, another troubled bank, have imposed restrictions on withdrawals. They have limited ATM withdrawals to US$200, according to customers and bank officials. Several Nadra ATMs had no cash in them Wednesday.
"Of course I am worried," said Svetlana, who declined to give her last name. She tried to withdraw 5,000 hryvna (US$1,000) from an ATM at Raiffeisen Bank Aval in the center of the capital, but was limited to just 1,000 hryvna (US$200).
Serhiy Kruglik, head of the foreign relations department on the central bank, said the IMF delegation would arrive Wednesday and meet with government representatives Thursday, review the measures Ukraine has taken so far and consider extending a loan.
"The financial crisis has shaken the whole world and we are no exception," Kruglik told The Associated Press. "But we have an additional problem: a political crisis." He said the size of any loan would be decided only after consultations with the IMF delegation.
The IMF's mission follows the central bank's freeze of selected retail accounts across the country, limits on loans and measures to stabilize the hryvna. The government has also taken steps to support the country's core steel and chemical industry.
Government efforts to battle the crisis have been complicated by a deepening political crisis, as Prime Minister Yulia Tymoshenko defied President Viktor Yushchenko's order to call early parliamentary elections.
Tymoshenko is fighting to stay in power and avoid a third parliamentary vote in as many years. Their court battle continued Wednesday and a council of the country's top judges were to consider their dispute Thursday.
Both leaders remained defiant. Yushchenko vowed the election will take place despite what he called Tymoshenko's "tricks." Tymoshenko again urged him to revive their shattered pro-Western coalition.
The central bank continued its struggle to stabilize the hryvna Wednesday, after the currency fell some 20 percent last week. The government intervened and the hryvna recovered some of its losses, but was still down some 12 percent from September.
Raiffeisen Bank Aval said in a statement Wednesday that it had received a US$180 million loan from its Vienna-based parent, Raiffeisen Centralbank Osterreich, causing its shares to rise on the local stock exchange.
Financial analysts said the banking restrictions were temporary and predicted the country would pull thorough the crisis as the central bank's emergency measures took effect. "I think the banking system will survive and will emerge not in a bad condition compared to some other countries," said Oleg Pronin of Dragon Capital Investment Bank.
Ukraine's main stock exchange, the PFTS, which has plunged some 75 percent over the past year, closed with a 5 percent drop Wednesday, following a global trend.
2. FITCH SAYS ANY UKRAINE IMF DEAL SUPPORTS CREDITWORTHINESS
By Peter Apps, Reuters, London, UK, Wednesday October 15 2008
LONDON - Any deal between Ukraine and the International Monetary Fund would support its creditworthiness, ratings agency Fitch said on Wednesday, but neither a failure of the deal or default by state energy firm Naftogaz would immediately hit the rating.
Fitch director of emerging Europe sovereigns Andrew Colquhoun said his main worries over Ukraine remained its external financing, the stability of its banking sector and other macroeconomics stresses. "
An IMF deal would certainly be supported in that it would give them additional reserves," he told Reuters in a telephone interview. "It will be good for general creditworthiness but I wouldn't want to tie it to a specific ratings decision. The absence of an IMF deal would not lead to immediate ratings action."
A central bank official said on Wednesday Ukraine might seek support from the IMF through a standby credit programme. Investors have dumped Ukrainian assets since August on growing political and economic worries, with the credit default swaps market almost pricing in default on its debt.
Fitch cut Ukraine's sovereign outlook to negative in September on deteriorating economic fundamentals and a rising risk of a currency crisis. It is currently rated as BB-. "Ukraine's main problem has been an overheating economy powered by credit boom so in some ways what is happening is just what was needed," he said. "But there is a risk it could be too abrupt a shock."
Ukraine made a sovereign guarantee in January it would cover $2.4 billion in debt from state energy firm Naftogaz, which is already technically in default on a $500 million Eurobond over its failure to provide audited accounts with debt insurance markets again seeing outright default as likely.
"In terms of Naftogaz, I wouldn't say a default there would lead to immediate negative ratings action on Ukraine itself," Colquhoun said. "I think they have enough in reserves to cover maybe $2-$3 billion in Naftogaz debt."
He said political instability remained a worry, with the ruling coalition having collapsed and elections imminent, but for now Ukraine was coping well.
"Obviously, it will be better if Ukraine had a working coalition with a strong consensus but on balance economic policy outcomes have not actually been that bad, albeit with an imperfect process," he said. (Editing by Ron Askew)
3. UKRAINE'S CENTRAL BANK UPS DEPOSIT INSURANCE
Reuters, Kiev, Ukraine, Wednesday, October 15 2008
KIEV - Ukraine's central bank will raise the amount of immediate compensation given for lost deposits to 100,000 hryvnias ($20,408) from 50,000, the bank's council head Petro Poroshenko said on Wednesday.
The move comes after the bank imposed temporary measures on Monday on banks aimed at making sure that deposits are not withdrawn early, while curbing borrowing and lending.
A run on the country's sixth largest bank, Prominvest, after speculation of a murky takeover deal, prompted the central bank to place it in receivership and authorities have been keen to ensure panic does not spread to any other banks.
The central bank has repeatedly declined to link the run on Prominvest to the global financial crisis. It has provided 12 billion hryvnias ($2.4 billion) in refinancing so far this month for banks, double the 6 billion hryvnia in September.
Poroshenko also said nationalisation could be a solution to the problem of Prominvest, but such a solution would need the support of parliament -- which was dissolved last week ahead of a Dec. 7 election after the ruling coalition collapsed.
"We should chose the way (to solve the Prominvest problem) that has been implemented by the majority of governments and central banks in Europe and the United States," Poroshenko told a news briefing. (Editing by Ron Askew)
4. UKRAINE, OTHER SMALL NATIONS FACE CRISIS ALONE
By Maria Danilova, Writer, Associated Press, Kiev, Ukraine, Wednesday, October 15, 2008
KIEV, Ukraine - While the world's economic giants may have averted financial collapse through rescue plans and huge infusions of cash, some smaller countries like Ukraine seem to have stumbled with little help on the horizon.
Among the most vulnerable states, it seems, are some of the young democracies born after the fall of the Soviet empire, which have seen their economies race ahead under democratic rule and capitalism — only to run smack into a global financial crisis.
Facing bank failures, turbulent markets and rapid inflation, Ukraine's politically fractured government imposed a series of emergency measures this week to shore up the economy.
At a news conference Tuesday, Prime Minister Yulia Tymoshenko dodged the question of whether Ukraine was seeking help from the International Monetary Fund, which would confirm fears about the state of Ukraine's economy. Instead, she offered broad assurances that there was no need for panic.
"The Ukrainian government is doing everything possible and impossible so that the impact of the global crisis on Ukrainian life, the Ukrainian economy is minimized," Tymoshenko said.
While the world's major economies snap up banks and bail out brokers, many modest-sized countries don't have such deep pockets. Hungary's currency has skidded 20 percent. Stocks have fallen in Poland. In Estonia, real estate prices have dropped 40 percent. Iceland, where stocks fell almost 70 percent Tuesday before rebounding, is trying to negotiate a $5.5 billion loan from Russia.
Ukraine, which has been locked in a political struggle with Moscow since it elected a pro-Western government in 2004, certainly can't go begging to the Kremlin.
Ukraine's inflation rate hit 31 percent in May compared with the same month the previous year, higher than any other country except Zimbabwe and Venezuela. The government scrambled and brought it down to a somewhat less shocking 16 percent rate as of September.
Faced with global economic uncertainty, depositors in Ukraine began frantically converting their local currency into dollars after the hryvna (pronounced HRIV-nyah') dipped by almost 20 percent, before clawing back some lost ground.
Analysts said the fall was due to investors pulling money out of Ukraine and many other emerging markets. The rate plunge stripped the banking system of $1.3 billion in the first two weeks of October.
Some analysts say that the so-called emerging markets of the world's vibrant young capitalist economies will bounce back quickly, because many are still shaking off the effects of decades of totalitarian rule.
Even so, many seem destined to ride an economic roller coaster in the short term, as real estate bubbles burst, banks go bust and consumer spending tanks.
Anders Aslund, an economic analyst, wrote in July that Ukraine's economic plight was not as bad as that of Russia in 1998, which plunged the country into a deep, prolonged recession.
Ukraine's state budget, he pointed out, had a healthy surplus, its public foreign debt was small and its national bank was flush with foreign currency reserves worth $36 billion.
But he still saw Ukraine facing "catastrophic" consequences if it failed to get inflation under control — and predicted that real estate prices could fall by half, while half of all banks might go bankrupt.
The country's two leading magazines came out with nearly identical covers this week — Korrespondent showing a one-hryvna bank note going up in flames, and Focus displaying a one-hryvna coin melting down. "Money is melting," warned Focus. "Hello crisis," Korrespondent announced.
Tymoshenko announced Tuesday that the government was freezing transportation costs, lowering natural gas prices and planning to cap electricity costs for the steel and chemical industries, an effort to boost the core sectors of the national economy.
The government's measures follow a central bank freeze of selected retail accounts across the country, limits on loans and other measures to stabilize the currency. "It looks like the National Bank is in control of the situation," said Volodymyr Dinul, an analyst with Renaissance Capital. "Let us hope that everything will calm down sooner rather than later."
One key to the financial problems in Ukraine, experts say, is a falling demand for steel, the country's key export commodity. Another factor is Ukrainians' mistrust of banks, founded on their painful experience with the hyperinflation following the 1991 collapse of the Soviet Union, which wiped out their savings.
Tymoshenko's government sought to compensate some of the losses from that long-ago crisis this year, but that proposal was stalled by her political feud with President Viktor Yushchenko.
One of the triggers for the current crisis was the trouble at two major banks, the sixth-largest Prominvest, which has been taken over by the central bank, and the seventh-largest Nadra, which has survived thanks to a $300 million central bank loan.
Fitch Ratings, a global credit rating agency, on Monday downgraded Nadra and noted that Ukrainian banks faced "challenging times" as near-term risks increased considerably.
Ukraine's main stock index, PFTS, closed with a minuscule 0.8 percent gain Tuesday, following the positive global trend and reacting to the government efforts. The stock market has lost nearly 70 percent since the beginning of this year, after a record 130 percent rise in 2007.
Independent financial analyst Geoff Smith said an aid package adopted by the G-7 leaders bodes well for Ukrainian banks, since European banks had stakes in nearly half of local banks. "After the G-7 rescue plan, I am cautiously optimistic the Ukrainian banking system will in general withstand the crisis," said Smith. Others remained concerned, saying the central bank's drastic measures showed the banking sector was in deep trouble.
The crisis has been aggravated by Ukraine's political deadlock, and the current crisis over control of parliament. That crisis deepened Tuesday, after Tymoshenko refused to heed Yushchenko's order and release government money to pay for early parliamentary elections he called for Dec. 7.
Tymoshenko, seen as Yushchenko's rival in the 2010 presidential vote, is battling to retain her office and avoid a third parliamentary ballot in three years. Yushchenko is determined to push through with the election and has abolished a court that froze election preparations.
NOTE: Associated Press writers William J. Kole in Vienna, Olga Bondaruk in Kiev and Catrina Stewart in Moscow contributed to this story.
5. UKRAINE NEEDS TO SORT OUT ITS PROBLEMS ON ITS OWN
EDITORIAL: International Herald Tribune, Paris, France, Tuesday, October 14, 2008
Once again, the president of Ukraine, Viktor Yushchenko, has called for a parliamentary election - the third in as many years - in an attempt to resolve his never-ending political struggle with his two main rivals, Yulia Tymoshenko and Viktor Yanukovich, the current and former prime ministers.
We sympathize with Yushchenko and his vision of anchoring Ukraine economically and politically in the West. And if new elections help clear up the political mess in Ukraine, well and good. The main thing is to make sure these are elections by and for Ukraine, without meddling from Russia, or the West.
Yushchenko and Tymoshenko were favorites of the West in the 2004 "Orange Revolution." Thousands of Ukrainians went into the streets to overturn the rigged election of Yanukovich, backed blatantly by Russia, as president. But the "Orange" allies soon fell out. Yanukovich was soon back in the Parliament and, for a spell, Yushchenko's prime minister.
In all that time, the three rivals have dismally failed to find a way to share power, seriously hampering Ukraine's development. Part of the problem is the division of Ukraine itself, with Yushenko supported in the European-looking west of the country, Yanukovich in the Russia-leaning east, and Tymoshenko moving back and forth.
The divisions are not going away anytime soon. And they will not be helped by any new meddling from Russia or the United States. After the nasty war in northern Georgia in August, both East and West should have no illusion about the danger of a conflict in the far larger and far better-armed Ukraine. The only way to avoid that, and to move toward political stability, is to leave the Ukrainians to sort out their own identities and prospects.
We still believe that Ukraine's future is with the West. But we don't believe that its Westward journey will be helped by pressures to join NATO so long as a sizeable portion of Ukrainians are against it.
At the same time, all three major political contenders have already declared their support for joining the European Union, which at this stage seems to be the best and most promising route for Ukraine.
Supporting the Ukrainians in this endeavor while staying out of their internal politics seems like the best support the EU and the U.S. could show for this young country.
LINK: http://www.iht.com/articles/2008/10/14/opinion/edukraine.php
6. S&P SAYS MAY DOWNGRADE HUNGARY, UKRAINE
Reuters, New York, NY, Thursday, Oct 16 2008
NEW YORK - Standard & Poor's on Wednesday said it has put the credit ratings of Hungary and Ukraine on review for a possible downgrade due to deteriorating financial sector conditions in both countries.
S&P placed Hungary's "BBB+" foreign-currency ratings on "creditwatch negative" due to concerns over mounting financial-sector funding pressures and their potential to raise general government debt substantially, from its current level of 67 percent of GDP.
The ratings agency said it will likely make a decision on Hungary's ratings before the end of the year, after it studies the effectiveness and the cost of a package announced by the central bank to shore up the financial system.
Ukraine's "B+" long-term foreign-currency debt rating was also placed on "creditwatch negative," as S&P fears a deteriorating economic situation and associated exchange-rate depreciation may hurt the country's financial-sector asset quality. A decision about Ukraine's ratings should be made this month, S&P said.