In a bid to halt the slide of Ukraine's hryvnia, the National Bank of Ukraine is capping foreign currency payments at $500,000 to limit outflows. "It's time to present a new administrative restriction," said NBU head Valeriya Gontareva in announcing the decision on Feb. 23.
The decision will
involve only business entities. Moreover, companies with a letter of credit
from foreign banks are not subject to the new regulation. Gontareva also said
that prepayments will be checked to stop fraud.
The new measure
came after the hryvnia experienced a new wave of devaluation. During the Feb.
23 interbank trading session, it went down to a new record low of 32.4 against
the U.S. dollar as of 4 p.m. It stood at 19 at the beginning of the year.
The International
Monetary Fund, which will provide a $17.5 billion loan in the next four years,
requires the NBU to be much more market-oriented in managing the Ukrainian
currency. The IMF hasn’t dispersed any money to Ukraine since Aug. 29, when it
got a $1.39 billion disbursement.
“Let’s not
beat around the bush – Ukraine is facing an economic/financial meltdown,”
Timothy Ash, head of emerging markets research for Standard Bank in London
wrote. “Remember the budget was built on an exchange rate of Hr 21.7/$1.
There are many problems facing Ukraine, including Russian intervention in
eastern Ukraine, and the conflict scenario therein – but the other big one is
the leisurely approach to supporting Ukraine adopted by the West…Such an
extreme exchange rate move risks payments problems, a deeper recession, bigger
budget imbalances, bigger losses in banks, and much lower (dollar) gross
domestic product.”
Keeping the
hryvnia rate artificially high was the reason why the government of former
President Viktor Yanukovych couldn’t get the new IMF loan program and had to
borrow as much as $40 billion from the market. A substantial part of that money
was sold on the interbank market to cover the population’s demand.
Things changed
after Yanukovych’s era ended with the former leader’s flight to Moscow.
Last year, the NBU
declared it is starting a free-floating regime for the Ukrainian currency,
while on Feb. 5 this year the regulator gave up the idea of intervening in the
interbank market and pouring dollars into it to keep the hryvnia rate higher
than the market would allow.
However, the NBU
still uses administrative measures to decrease the pressure on the hryvnia as
long as they are in line with IMF requirements for lending.
Kyiv Post legal affairs reporter Mariana Antonovych can be reached at [email protected].
