Panic as Ukraine’s currency plummets reports panic as Ukraine's currency plummets:

(emphasis mine)

[15.12.2008 09:33]
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.

My reaction: Another currency bites the dust. With Ukraine and Iceland, the total for failed currencies stands at two: the Krona and the hryvnia. The dollar and pound will soon join that list.

There are two points I am now wondering about:

1) How much will dollar's collapse help already failed currencies like the dollar? (probalby a little)

2) With "industrial production is in freefall" in Ukraine and other nations, could we end up seeing shortages of goods? (I think yes)

[due to jetlag and other factors, this will be the last entry for today. I will finish the articles I am working on tomorrow.]

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0 Responses to Panic as Ukraine’s currency plummets

  1. Anonymous says:

    I think your question about a lack of
    industrial production spurring a lack of goods, or goods scarcity is true for certain things. I think oil, which has had the cr@p scarred out of it with a 70percecnt decline in 5 mos. is definitely going to be in short supply. Oil is a capital intensive operation and with that kind of volatility makes the oil execs think twice and maybe three times before committing capital to such risky endeavors. As far as industrial goods, I think that scarcity will be commeasurate with scarcity of demand. People aren't looking to splurge in the current environment. Ukraine like everyone else needs to slow down and start saving capital to invest in areas that are going to be profitable.

    With America on the ropes, the world is looking for a new paradigm. No longer will all export roads lead to America. We're going to have to share the earth and its resources with everyone else. Until that time, look for a lot of uncertainty in direction. What needs to happen is that the 350M American consumers need to be circumvented and about 1B new emmerging market consumers need to be incorporated into the new global economic system.

    I see resource countries like Russia and Australia trading with manufacturers like China and Japan. Brazil and southeast Asia are also clammering for a piece of the pie.

    One things for sure, America has lost its pre-emminent position as the worlds consumer for better or worse. America needs severe introspection to chart a course of new expansion.

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