What has caused the hryvna to devalue within two weeks from Hr 2.1 to the dollar to Hr 2.6, and prices to increase by a third in private stores? Is it because the Russian ruble collapsed from 6 to 21 to the dollar? Because people panicked? Did the government blunder in devaluing the hryvna?
Last Sunday on Ukraine's national television news program, Seven Days, the economist and parliamentary deputy Valery Kolomoitsev debated with National Bank adviser Valery Lytvytsky on the reasons for the falling value of the hryvna. Kolomoitsev argued that the effect of devaluation will be a stampede by the population to dump the Hr 12 billion they hold for dollars, which would lead to the collapse of the banking system and a surge in inflation.
Lytvytsky belittled Kolomoitsev's apocalyptic prediction. He claimed that there were only Hr 5 billion circulating outside the banks, and assured the public that the banking system had enough dollars for anyone worried about the value of the hryvna. (This was when the hryvna was still trading at 2.25 to a dollar.)
Lytvytsky gave an up-beat assessment of the effect of the ruble's devaluation on Ukraine, saying Russian oil and gas will be cheaper, saving Ukraine about half a billion dollars. He repeated the National Bank's mantra that the collapse of the ruble would not have much effect on the hryvna as Ukraine's huge trade turnover with Russia is either in dollars or barter. He pleaded with the public, just as his boss Viktor Yushchenko has, to hold on to the hryvna and not to panic.
The public has not been heeding the bank's advice and there has been a rush to withdraw hryvna and change them into dollars. Panic is in the air and turning into anger against the government as people cannot get hold of dollars to protect their savings.
The fundamental problem is that the Ukrainian government is bankrupt because it has failed to create an investment climate that would usher in new jobs, which in turn would provide additional revenues. The decline of the hryvna, the rush for dollars and the government's inept response are just symptoms of the crisis and not its cause. That is the view the former economics minister and now parliamentary deputy Viktor Pynzenyk expressed in an article in the weekly newspaper Zerkalo Nedeli last week.
He wrote that for too long the government has been living on borrowed money. It has paid immense interest rates (up to 70 percent) on its treasury bills, forking out a total of Hr 1.2 billion in interest so far year. That is half the sum of the loan that the International Monetary Fund has recently approved for Ukraine.
Instead of creating a climate favorable to investment in the means of production and distribution, the government has created a high-tax regime that at whim can seize the assets of any enterprise. Pynzenyk asked: 'What idiot would invest in a country where there is a tax police which can freeze the accounts and seize the property of any enterprise?'
No amount of foreign funds will help without a favorable investment climate. Since last year, the National Bank has used up over a billion dollars from its reserves to support the hryvna. If the present exchange rate cannot be held, a crisis cannot be avoided. Decisions have to be taken quickly, what is needed is political will. Instead the government is taking administrative actions to remove as many dollars out of the banking system as possible.
Not only is political will lacking within the government, but political forces outside the government seem determined to copy the Russian scenario that led to the collapse of the ruble.
The first volley was fired by the Hromada Party's Yulia Tymoshenko, who on the opening day of the new parliamentary session, Sept. 1, called for President Leonid Kuchma's impeachment.
At first it seemed that Tymoshenko was another lone voice of dissent in parliament. The leaders of the political parties met during the first week of the new session with Prime Minister Valery Pustovoitenko, Deputy Prime Minister Serhy Tyhypko and Finance Minister Ihor Mityukov, and approved the government's package of measures to stabilize the hryvna. Kuchma also met the political party leaders and the Presidential Administration reported that they all agreed to support the government's actions to defend the hryvna.
The government's measures even met with the approval of Ukraine's Communist Party, in contrast to their political brothers in Russia, who are determined to bring down the Yeltsin government whatever the cost to the ruble and the economy.
A week after parliament opened, the political truce came to an end. On Sept. 8, the Socialist Party-Peasant Party bloc issued a statement that the entire government, including the president, should resign and new presidential elections be called immediately. So much for the harmony promised by one of the leaders of the Peasant Party, Parliamentary Speaker Oleksandr Tkachenko.
The government had hoped that after it forgave his company's debts to the state, Tkachenko could be relied upon to keep the parliament, and especially his own Peasant Party, in order. That has proved a waste of tax payer's money.
And into the fray came the Hromada Party, pressing for an extraordinary session of parliament to discuss the present economic crisis.
Another hammer blow against the government was given by Yevhen Marchuk, the former head of the Ukrainian secret police, a former prime minister under Kuchma, leader of the Social Democratic Party, and a serious candidate for president. He also called for the resignation of the government.
Socialist Party leader Oleksandr Moroz also thinks that a political fight with the president is inevitable, the newspaper Den reported. He is gaining wide support across the political divides. Not only does Tymoshenko support his candidacy, but also such disparate individuals as socialists, nationalists, and even some members of the Ukrainian diaspora and Ukraine's diplomatic community. What unites them all is the fear that Communist Party leader Petro Symonenko might win the presidential elections.
Surprisingly, it is the Communist Party that is still supporting Kuchma. If the Communists decide to go against the president, then the Russian scenario of fighting to the finish regardless of what happens to the economy will begin.
Communist deputy Viktor Ponedilko was quoted by Den as saying: 'We demand that one of the elements of the anti-crisis program is the freezing of treasury-bill debts.' If that happens, it will cause a stampede out of the last remaining investments in Ukraine.
The government has gone on the offensive against its enemies, using television to smear Lazarenko and Tymoshenko for their business dealings.
It seems Lazarenko's only way of avoiding jail is to force the government to resign, or failing that, doing a behind-the-scenes deal with Kuchma.
In the immediate future, the Communist Party of Ukraine will decide whether Ukrainian politics and the hryvna will follow Russia into the abyss. Symonenko recently visited his Russian counterpart, Gennady Zyuganov, to enlist his advice.
Reports this week indicated that the Communists seem to be moving toward impeachment of the president. If that turns out to be true then the hryvna will sink to unheard of lows and the fragile economy will unravel.
