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Focus on Ukraine, February 23 – March 1, 2009

March 2, 2009


Overview of political events of the week

February 23

Ukraine must make amendments to the national budget in order to receive the second tranche of the loan from the International Monetary Fund.
Chairman of the Council of the National Bank of Ukraine Petro Poroshenko said the IMF did not reject a loan to Ukraine. It simply took a recess so the Ukrainian government could adopt amendments to the 2009 budget.
As a reminder, in November Ukraine received the first tranche of an IMF loan in the amount of US $ 4.5 million. Though the second tranche of the loan was to be delivered last week, the IMF held it back until the Ukrainian government reduces its budget deficit, strengthens its monetary policy and takes control of the banking sector.

President Viktor Yushchenko once again urged the premier to review the national budget and draft it based on real indicators.
In response, Premier Yulia Tymoshenko said the government will begin reviewing the national budget no sooner than May.
VR Speaker Volodymyr Lytvyn said the current budget is UAH 50 billion. In order for the IMF to renew talks with Ukraine, another US $20 billion must be found to fill the whole in the national budget.

A huge crowd of demonstrators showed up beneath the walls of the National Bank of Ukraine demanding that deposits be unfrozen, give extensions on repayment of loans to people that temporarily does not have the financial wherewithal, prohibit banks from increasing interest rates on loans and repossess property for late payments.
Among the demonstrators are deposit account holders, private entrepreneurs and average citizens that are unable to pay back their bank loans.
In addition to that, the demonstrators demanded that they repay their loans at the exchange rate of the dollar that existed when they signed their agreements.
The demonstrators in front of the building of the Presidential Administration put realistic demands to the government and the National Bank of Ukraine.

February 24

Ukraine’s Vice Premier on European Integration Hryhoriy Nemyrya announced that Ukraine will receive the second tranche of the loan from the International Monetary Fund in March. He said the IMF is no longer requiring a balanced budget from Ukraine. Furthermore, representatives of the IMF do not feel Ukraine is at risk of a default.
Meanwhile, President Viktor Yushchenko continues to blame the government of violating the agreement with the IMF with a budget deficit of more than 1%. The Presidential Secretariat urged the Cabinet of Ministers to consult with the National Bank of Ukraine this week in order to establish a uniform position of Ukraine in talks with the IMF.


Premier Yulia Tymoshenko stated at a meeting of the Cabinet of Ministers that reviewing the national budget in the current times of crisis is not advisable, though it does require certain adjustments.

The head of the government agreed that the expenditure side of the budget must be reviewed once again in order to more effectively allocate budget funds.
Recall that the premier presumed that amendments to this year’s budget will only be made in May. Meanwhile, the IMF is insisting that the Ukrainian government review its budget deficit of nearly 3%. Representatives of the IMF said the Cabinet of Ministers must reduce the country’s deficit in order to receive the second tranche of the loan.

February 25

The Prosecutor General’s Office interrogated former president of Ukraine Leonid Kuchma in the course of the investigation into the case of the organizers of the killing of journalist Georgiy Gongadze.
A representative of the PGO said that although the ex-president Kuchma has been questioned about the Gongadze case a number of times, he has not disclosed any details.
In an interview for the newspaper Komsomolska Pravda Kuchma said the Gongadze case was fabricated.
As a reminder, a former guard of the presidential secret service Mykola Melnychenko, whose personal recordings were made public at the end of 2000, accused Kuchma and a number of high-ranking government officials of killing Gongadze.
Gongadze disappeared on September 16, 2000. Later his body was found beheaded in a forest near the village of Tarashcha.

February 26

President Viktor Yushchenko called Kyiv Mayor Leonid Chernovetskiy from his vacation to report to the head of state and law enforcers on is activity.
In particular, the president wants to know how the city government finances the city’s viability, cooperates with small and medium businesses and why it has introduced taxes and duties that infuriate the people.
Such was the president’s response to a series of demonstrations held in front of the Kyiv City Hall in protest to the mayor’s policies.
Meanwhile, the Shevchenko District Council has announced its plans to hold a referendum of no-confidence in the mayor of Kyiv.

The Standard & Poor rating agency lowered Ukraine’s credit rating to a pre-default level, which is the lowest in all of Europe. Meanwhile, the Financial Times forecasts that Ukraine’s GDP will fall by 5.4% this year.
Though Ukraine, Hungary and Latvia suffered the most from the economic crisis in the region, the FT says Ukraine’s risk of default is seven times higher than that of Hungary.
Moreover, the value of Ukraine’s currency fell by 40% relative to the Euro, the highest among all other European currencies.
The devaluation of the currencies of Poland and Russia is behind Ukraine at 20%.

The IMF warned that Ukraine’s economy will continue to fall. The fact that the IMF is holding back the next tranche of the loan to Ukraine promised for February 15 due to the lowered ratings of Ukraine’s economy is testimony to the fact that “Ukraine’s economic indicators are becoming more complicated in light of the impending presidential elections.”
Ceyla Pazarbasioglu, Chief of the Capital Market Development and Financial Infrastructure Division, International Monetary Fund (IMF), that with such conflicts dodging the repercussions of an economic crisis becomes more difficult.

The International Center for Policy Studies reported that more than two thirds of Ukrainians cannot afford to make major purchases, which is testimony to squandered savings earned during the period of economic growth.
According to the results of its public opinion polls, the drop in the value of the hryvnia caused a decrease in people’s purchasing power. Moreover, Ukrainians are alarmed by the anticipated rise in inflation.

February 27

President Viktor Yushchenko, Premier Yulia Tymoshenko, NBU Governor Volodymyr Stelmakh, VR Speaker Volodymyr Lytvyn and representative of the political opposition Mykola Azarov gathered at a roundtable discussion.
The purpose of the meeting was to coordinate the activities of all bodies of state power and political forces in the throes of the current financial crisis. To be more specific, the leaders of the country agreed to prepare a joint document to submit to the IMF by March 2 that would extend its line-of-credit with this global financial institution.
The president of Ukraine said a special group of experts will work on drafting such a document. On March 2 at 15:00 the highest state officials will sign the according document and submit it to the IMF on March 3.

The National Bank of Ukraine decided to hold special auctions for the sale of hard currency to banks at the demand of customers wanting to repay their loans.
Banks will sell hard currency to borrowers at a privileged rate of UAH 7.9/US $. In order to do so the banks will have to submit to the NBU a schedule of payments based on such loans and purchase hard currency on auction.
The NBU said it made such a decision to improve the situation on the hard currency market, lower the volume of dollar purchases at exchange outlets and ease the credit crunch.
Such auctions will he held every Friday. Today the NBU held its first targeted hard currency auction to support borrowers.

 




 



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