Ukraine's hryvna currency has fallen sharply as foreign capital flees the country ahead of a March 29 parliamentary election, investment analysts said on Thursday. The hryvna fell on Thursday to Hr 2.0149 to the dollar on turnover of $40.99 million on the Ukrainian Interbank Currency Exchange (UICE) from Hr 2.009 per dollar on Wednesday.
'The rate is dropping daily as there is a deficit of hard currency and hard currency reserves must not be spent,' said Elena Bereslavska, a UICE analyst.
The hryvna was at Hr 1.910 per dollar on Jan. 21 when the bank and government widened the 'currency corridor,' or trading band, to Hr 1.80 to 2.25 per dollar for 1998 from a previously announced Hr 1.75 to 1.95 per dollar range. Western bankers described the new range as devaluation 'through the back door.'
Bereslavska said money was being taken out of the country and everyone was taking a wait-and-see position ahead of the March 29 parliamentary elections where anti-reform leftists may do well.
Paul Gregory, head of research at Alfa Capital, said redemptions of Treasury bills were eating away at reserves. He estimated foreign investors would take out around half of this week's redemptions of about Hr 200 million, and that foreigners would also refuse to re-invest a good portion of the Hr 600 million due to be repaid in the first three weeks of March.
Gregory said the hryvna is seeking an equilibrium. 'It shouldn't really fall forever,' he said. Valery Lytvytsky, President Leonid Kuchma's top economic adviser, said the fall was tied to external factors. 'I think the current situation is not forever and that it will exhaust itself by the end of the first half of this year,' Lytvytsky said.
Bereslavska said the situation would turn around after the election. 'If a Parliament similar to the present one is formed then a return of capital and a stabilized hryvna can be hoped for,' she said.
Serhy Tyhypko, deputy prime minister for economic reform, said previously the hryvna's fall would stop once Ukraine received money from its Deutsche Mark 750 million Eurobond issue on Feb. 11.
The money arrived on Thursday.
