Oct 20 (Reuters) - Prime Minister Yulia Tymoshenko expressed confidence on Monday that talks with the International Monetary Fund would prove successful and that Ukraine would secure “substantial” financial assistance. [UA-M]
Officials have suggested the IMF could lend Ukraine a sum ranging from $10-14 billion.
Following are key facts about why Ukraine is vulnerable to heightened risk aversion among international investors.
* Ukraine has been plagued by political turbulence since “Orange Revolution” protests in 2004 brought to power President Viktor Yushchenko and a team committed to moving closer to the West and joining NATO and the European Union.
Rows pitting Yushchenko against his former ally Yulia Tymoshenko, who twice served as his prime minister, undermined the “Orange” camp and brought down governments. The president dissolved parliament this month and called a December parliamentary election, the third in as many years.
* Upheaval — and trouble forming a stable ruling coalition — reflect Ukraine’s longstanding division into the nationalist west and centre, which looks to the EU and United States, and the Russian-speaking east and south, friendlier towards Moscow.
* Relations with Russia, bumpy throughout the post-Soviet period, have sunk to unprecedented lows over Yushchenko’s denunciation of Moscow’s military intervention in Georgia. Ukraine depends heavily on Moscow for energy supplies.
* The hryvnia currency hit an all-time low of 5.9/$ on Oct. 8, weakened by growing global risk aversion and regional tensions after Russia’s conflict with Georgia.
* In mid-2008 the hryvnia had strengthened as far 4.5/$, after the central bank abandoned a policy of keeping it in a corridor of 5.00-5.06 per dollar within a 4.95-5.25 band.
* The central bank’s council and executive board have sent mixed messages about future actions and clashed in May over revaluing the hryvnia’s official rate. The board appears to take less notice of the currency band, set by the council.
* The central bank has said foreign exchange reserves as of the end of September at $37.5 billion covered 3.7 months of imports.
* The current account deficit was running at 7.9 percent of GDP in the first half of this year, up from 4.2 percent in 2007.
* Analysts based outside Ukraine forecast its current account deficit at $21-25 billion, or 10-12 percent of gross domestic product, by year-end; Ukraine-based analysts give lower forecasts of about 6 percent of GDP.
* Prices for Ukraine’s steel exports are forecast to drop, while Russia’s Gazprom has suggested next year’s price for gas imports could soar to $400 per 1,000 cubic metres from $179.50 now.
* The central bank risks encouraging imports and further widening the trade gap if it supports the hryvnia. However, letting it float would remove an important anchor for domestic and foreign businesses in Ukraine’s export-driven economy. * Many people hold debt in foreign currency and would have to pay more to service it if the hryvnia weakened.
* Consumers are extremely sensitive to currency movements — they lost savings when the Soviet Union collapsed and again through hyper inflation and a currency crisis in the 1990s that more than halved the hryvnia’s value to about 4/$ and beyond.
* Ukraine was forced to restructure its debts in 2000 and made the final payments on that restructuring just last year.
Ukraine’s foreign debt totalled just over $100 billion as of July 1, of which about $15 billion was government debt.
* The central bank has said it expects banking sector debt worth $1-1.2 billion to mature in the final quarter of this year.
* Citi analysts estimate Ukraine’s 2009 external financing requirement to be $55-66 billion, of which $32-40 billion is in the private sector. Foreign banks own 40-42 percent of total banking assets and 25 percent of short-term banking debt is owed to parent banks. (Compiled by Sabina Zawadzki; Editing by Ruth Pitchford)