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“We must be a non-aligned state. We have to learn to live independently,” he said at a meeting with citizens of the town of Hadiach in Poltava region on Tuesday.

According to the head of the parliament, the question of whether Ukraine should join NATO or not NATO could be a source of conflict in the country.

The position of the people must be taken into account, and most of them oppose Ukraine’s joining NATO, Lytvyn added.

At the same time, he noted that the question on Ukraine’s joining the North Atlantic alliance is not a primary issue now.

(from Interfax)

The World Bank has also revised their economic outlook for Ukraine…and it is not very positive.

“Ukraine’s faltering economy will plunge into a deep recession and shrink by 9 percent this year, far worse than previously expected, according to the World Bank”

After nearly a decade of robust growth, the economy is being hit hard by the deterioration of the global economy and the national government’s failure to implement anti-crisis measures, the Bank said in a statement.

Inflation will hit 16.4 percent this year, better than last year’s 22.3 percent but still very high.

In December, the Bank had forecast that Ukraine’s economy would shrink by 4 percent and projected inflation at 13.6 percent. The International Monetary Fund expects the economy to contract by at least 6 percent this year.

Those estimates contradict sharply with government expectations of 0.4 percent growth and 9.5 inflation this year, which many analysts dismiss as unrealistic.

Ukraine’s economic crisis is one of the worst in Europe. Industrial output slumped by 32 percent in January and February compared with a year ago, and output in the construction industry dropped by 57 percent during that period, according to the World Bank.

The national currency, the hryvna, has lost about 40 percent of its value to the dollar since the crisis hit last fall.

Furthermore, constant political turmoil has worsened the effect of the global crisis on Ukraine by stalling the implementation of key anti-crisis policies.

The IMF withheld the second tranche of an emergency $16.4 billion loan this year after the government failed to trim spending and adopt other stabilization measures.

(from AP)

Pegging a currency in a tumultuous global financial market may have short term gains, mostly political, but in the long run it’s a huge mistake. Although it is politically difficult to float the Ukrainian currency now, it’s important that the world know the real market UAH/dollar rate. Currency fluctuations are one important way of assessing the risk of emerging markets. Such is the dilemma of central banking. It must be perceived as politically independent and transparent in its decisions, but its duty is at some level to help the people survive difficult times. Artificially raising the value of UAH is fight against real reforms that albeit painful are still necessary to secure the state currency. Forcing people to buy and sell at certain rates is a negative sign to investors that will only make the pain of coming reforms last longer and further depreciate the currency over the medium term.

Hryvnia Plunges as Ukraine Warns Banks to Keep to Official Rate

Ukraine’s currency tumbled for the first time in seven days even as the central bank warned 17 lenders not to buy or sell the hryvnia for less than the exchange rate it sets, according to Bloomberg.

“We have contacted the first group and issued warnings,” Serhiy Kruhlik, the central bank’s head of external relations in Kiev, said in a telephone interview today. “We’ll talk to a second group this week and the approach will be the same.”

Ukraine’s currency has slumped 42 percent against the dollar in the past six months, the second-biggest loss worldwide, causing the central bank to drain a third of its foreign-currency reserves. The ex-Soviet republic, which is struggling to fund a $12.3 billion current-account deficit amid frozen credit markets, is receiving a $16.4 billion bailout loan from the International Monetary Fund on the condition that it avoid further depletion of reserves.

The hryvnia had stayed unchanged at 7.8500 per dollar for the past week, close to the average 7.98 per dollar set by the central bank on March 6. The currency tumbled as much as 4.9 percent to 8.2350 today as bid and offer prices ranged beyond the average level set by the Natsionalnyi Bank Ukrainy, according to data compiled by Bloomberg.

“This is a tussle between the banks and the NBU,” said Dmitry Gourov, a Ukraine economist in Vienna at UniCredit SpA, Italy’s largest bank. “The central bank could easily make a scapegoat of one particular bank, there’s always that risk.”

‘Verbal Warnings’

The central bank made “verbal warnings” to the country’s larger banks last week that they may lose the right to buy foreign-currency reserves if they traded the hryvnia below the central bank’s rate, said Alexander Pecherytsyn, head of financial markets research at ING Groep NV in Kiev.

Banks adhered to the order because they “fear action from the central bank, such as the withdrawal of their licenses,” Pecherytsyn said. “Some of the smaller banks trade it at a weaker rate but that doesn’t show up on the screens.”

Credit Suisse Group AG hadn’t received any warning from the central bank, said Nikolai Yukovich, a data manager in Moscow. The bank had a bid for hryvnia at 8.2450 per dollar today and offered the currency at 8.3950, according to prices on Bloomberg. Traders at Galt & Taggart Holdings Inc., a Kiev-based brokerage, are seeing bid and offer rates at 8.34 and 8.42 per dollar today, said Jathan Tucker, head of trading.

Coalition

The hryvnia began tumbling in September when the collapse of the ruling coalition between President Viktor Yushchenko and Prime Minister Yulia Timoshenko raised concern that the government would be unable to implement policies to stem the fallout from the global financial crisis.

Standard & Poor’s cut the country’s credit rating two levels last month to CCC+, the lowest in Europe and seven steps below investment grade.

The government approved a budget deficit equivalent to 5 percent of gross domestic product, even as the IMF demanded a balanced budget as part of the conditions for its loan, which is being paid in tranches.

Ukraine’s economy will contract at least 5 percent this year, according to Yushchenko, as steel companies like Yenakievsky Metalurhiyny Zavod reduce output. Industrial production plummeted 34.1 percent in January, while the country’s 20.9 percent inflation rate is the highest in continental Europe. The central bank forecasts inflation of “at least 15 percent” in 2009.

permanent URL of article:

http://www.unian.net/eng/news/news-305002.html

Ms. Tymoshenko feels Eastern Europe is “cast adrift.” She looks to France for leadership to push through a new free trade accord with Europe (and cash, too). Free trade is, of course, critical to the success of Ukraine, but free trade is more than just allowing foreign products to be sold domestically without unfair import duties. Free trade is also about making it easier to do business at home for both domestic and foreign companies. Kyiv must create a fair and level playing field for all businesses to compete. This job requires in the utmost transparency in markets and regulatory decisions and an end to the rampant corruption that stymies entry to the Ukrainian market for all but the largest and most powerful corporations — and those willing and able to pay bribes.

If Kyiv wants the rest of the world to take it seriously, it must first put its own house in order. The country remains sealed in a post-Perestroika cocoon awaiting rebirth and neither France nor any other country has an appropriate vision for breaking Ukraine out of its nascent state. A new vision for Ukraine must come from within via a new domestic debate. We at MBS only hope that vision will be one of neutrality in foreign relations and greater freedom for all Ukrainians. From our perspective, the enormous potential of Ukraine can only be unlocked by what Karl Popper called an “open society” that recreates a “country of laws and not of men” as Thomas Jefferson commanded of a new America. Such a reality must not be fantasy, but civil society in Ukraine has a long way to go. The first step is a new attitude from Ukrainian society and some sort of “born again” experience by leaders in Kyiv. Recent cuts in politicians’ wages are a start. Perhaps real reforms can only come from Ms. Tymoshenko’s successor as she clearly misses the boat here. Without a new debate, the future of Eastern Europe’s wobbling domino is lost in uncertainty.  Although the situation may seem dire, there is hope.  The world is looking for a new haven for freedom and liberty.  Why not Ukraine?

(more…)

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.

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