MBS Blog

There is a mad scramble for capital now. People are looking for loans from banks. The banks are looking for loans from governments. Governments are looking for loans from each other and eventually governments will have to get the money from their citizens…

Eastern Europe has been especially hard hit. It will interesting to see if nations in the European Union-who have the largest share of foreign investment in Eastern European emerging markets-will come to the rescue. With limited resources, and their own credit and banking problems, European nations are going to have a bit of trouble loaning to Eastern Europeans, especially when their own populations are also suffering.

If the situation in Eastern and Central Europe worsens however-and that is the expectation at this point-then Western Europe could be forced to help since the geo-political repercussions would be quite negative.

this from the Associated Press:

Ukraine seeks euro500 mln from EBRD

Ukrainian President Viktor Yushchenko on Wednesday met with the chief of the European Bank for Reconstruction and Development amid efforts to secure a euro500 million investment package to rescue this ex-Soviet republic`s devastated economy, AP reported.

The bank is considering investing the money into recapitalizing some Ukrainian banks, shaken by the global credit crunch and a confidence crisis. Three Ukrainian banks have been put in receivership and another one has been sold to a Russian institution after being taken over by the central bank.

The economy is struggling to stay afloat after the International Monetary Fund withheld a key second tranche of a $16.4 loan over a failure to meet loan obligations earlier this month, prompting Kiev to turn to G-7 members and Russia for aid.

The loan problems led the international rating agency Fitch to downgrade Ukraine`s ratings, while another agency, Standard and Poor`s, threatened a similar move.

The IMF said Ukraine had failed to cut government spending and reconsidering this year`s budget, as had been agreed on. Finance Minister Viktor Pynzenyk resigned last week in a row with Prime Minister Yulia Tymoshenko over the same concerns.

Yushchenko told EBRD President Thomas Mirow that a failure to receive the expected $12 bln in aid from the IMF this year could severely hurt the economy and that is why Ukraine was turning to the EBRD for help.

“The situation is complicated,” Yushchenko told Mirow, according to the Interfax news agency.

Industrial output slumped by a staggering 34.1 percent in January, year-over-year, in what officials said was the biggest fall in the country`s history.

The national currency, the hryvna, has lost 40 percent of its value since last fall, due to a drastic fall in exports.

The crisis, coupled with a higher gas bill from Russia has also led to gas shortages in the eastern city of Dnipropetrovsk and the southern Crimea peninsula. Officials said, however, that hot water and heating supplies had been restored in most households in those regions by Wednesday morning.

Technorati Tags: capital, loans, Europe, Ukraine, Russia, Anton Olff, MBS Ltd., Eastern Europe, Central Europe, Associated Press, President Viktor Yushchenko, European Bank for Reconstruction and Development, EBRD, Soviet Union, recapitalization, global credit crunch, International Monetary Fund, Kiev, G-7, Fitch, Standard & Poors, Yulia Tymoshenko, Viktor Pynzenyk, Thomas Mirow, industrial ouput, hryvna, exports, gas shortages, Dnipropetrovsk, Crimea

As a resident of Odessa, I can attest to the fear out there regarding the free fall of the hryvnia.  People are downright scared and the empty stores, restaurants and cafes indicate they are not spending.

As this article from www.unian.net states, it is extremely difficult to get dollars and euros at banks or kiosks.

On a positive note, this could force the Ukrainian Government to enact needed changes which were put off during better times. After the crisis recedes, and with economic reforms, Ukraine will be at the forefront of emerging markets.

Panic as Ukraine’s currency plummets

The national currency of Ukraine, whose pro-West government wants to join the European Union, has almost halved in value in the last six months, prompting panic amongst its heavily indebted population.
The sudden fall in the hryvnia has sent Ukrainians rushing to exchange booths to change local money for hard currency, in scenes that recalled the hyperinflation suffered by the country in the early 1990s.
Not only do Ukrainian consumers have to pay back loans taken out in more prosperous times but many will also have to pay them back in dollars.

The hryvnia (UAH) was on Friday trading at 7.49 UAH against the dollar compared with 5.05 UAH at the beginning of the year and 4.84 UAH in July.

The National Bank of Ukraine has allowed the hryvnia to trade freely in line with the conditions of a 16.4-billion-dollar (12.8 billion euro) IMF loan aimed at helping the country through the financial crisis.
The hyrvnia — a currency introduced in 1996 and named after money used in ancient Kiev — has endured the ignominy of suffering one of the worst devaluations, along with the Icelandic krona, in the global financial crisis.

“I consider myself a cultivated gentleman. But at the moment I`m thinking of taking petrol and a lighter and setting the National Bank of Ukraine on fire,” said Egor Sobolev, a journalist who owes 60,000 dollars for his flat.

“We are paid in hryvnia and for the moment our family budget allows us to make monthly payments of 1,000 dollars, but if the hyrvnia falls to 10 or 15 to the dollar the Bank has a big chance of going up in flames!”

As of December 1, Ukrainian consumers had notched up debts of 235.5 billion hryvnia (31 billion dollars) some 70 percent of which (176 billion hryvnia or 23 billion dollars) has been taken out in foreign currency.

Dollars and euros were almost impossible to buy in banks and exchange offices in Ukraine in November as people flocked to trade their hyrvnia for stronger currencies.

The growth in hryvnia-denominated bank deposits was replaced in October by an outflow amounting to 10 percent of investments.

The panic reached a peak earlier this month when a newspaper reported that all dollar bank savings could be converted into hryvnias, a rumour vehemently denied by the authorities.

“Savers can only feel that they have been duped and have reason to be scared of similar surprises in the future,” said the Dzerkalo Tyjnia weekly.

“Who is going to answer for for the devastation of entire layers of Ukrainian society?”

President Viktor Yuschchenko oversaw the currency`s introduction when he was working as head of the central bank in the 1990s.

Ukraine has been among the countries hardest hit by financial turmoil as the plunging price of steel, the country`s main export, has exacerbated a credit crunch and a sharp fall in stock prices.

Underlining the country`s difficulties, Ukrainian industrial production is in freefall, crashing 15.2 percent in November compared to the previous month and 28.6 percent compared to November 2007.

Metals output in November was 23.5 percent lower than in October and a whopping 48.8 percent lower than the same figure for November 2007.

Out of the three major economies of the former Soviet Union — Kazakhstan, Russia and Ukraine — Ukraine is to see the sharpest slowdown, analysts at UBS said in a bleak research note.

“Ukraine will see the sharpest slowdown among the three countries despite support from the IMF. Its currency will have to devalue given that it has the worst net international asset position,” the UBS analysts said.

But they added that with the conditions of the IMF loan there is a “good chance” that Ukraine might finally start implementing the reforms that it had put off for 10 years.

Technorati Tags: Odessa, Ukraine, hryvnia, www.unian.net, Anton Olff, dollars, euros, Ukrainian Government, economic crisis, European Union, consumers, National Bank of Ukraine, UAH, Kiev, devaluations, Icelandic krona, Egor Sobolev, Dzerkalo Tyjnia, Viktor Yuschenko, stell, credit crunch, industrial production, Soviet Union, Russia, Kazakhstan, IMF, reforms

Well…this move was easy to predict. As reported on www.bloomberg.com, the Ukrainian Government is now restricting bank withdrawals.  In some ways, this is like closing the barn door after the horse has already made it out.  Many companies had anticpated this change, and have acted already.

Interesting to see if further restrictions are placed in the near term. In the meantime, I am going over to the ATM near my office to make a cash withdrawal.  

Ukraine Restricts Bank Withdrawals to Avert Liquidity Crisis 

By Kateryna Choursina

Dec. 8 (Bloomberg) — Ukraine’s central bank restricted withdrawals from banks before the maturity date of individual contracts to avert a liquidity crisis.

The Kiev-based Natsionalnyi Bank Ukrainy said in a letter to commercial lenders on Dec. 6 that early withdrawals of deposits “leaves liquidity of some banks under threat,” according to a statement on the bank’s Web site.

The central bank introduced a six-month moratorium for domestic lenders to return deposits to clients before contracts with banks that ended on Oct. 13 after depositors started withdrawing their money. Ukrainians were withdrawing as much as 2 billion hryvnia ($100 million) a day in the first days of October, First Deputy central bank Governor Anatoliy Shapovalov said on Oct. 24.

The regulator also recommended that banks reduce foreign- currency interest rates, according to a statement on its Web site also dated Dec. 6.

Technorati Tags: Banker, www.bloomberg.com, foreign currency interest rates, deposits, domestic lenders, hyrvnia, First Deputy Central Bank Governor, Anatolii Shapovalov, Kiev, Kyiv, Natsionalnyi Bank Ukrainy, liquidity, central bank, Ukrainian Government, Anton Olff,