Ukraine Faces the Crisis Alone
KIEV -- While the world's economic giants may have averted financial collapse through rescue plans and huge infusions of cash, some smaller countries like Ukraine seem to have stumbled with little help on the horizon.
Among the most vulnerable states, it seems, are some of the young democracies born after the fall of the Soviet empire, which have seen their economies race ahead under democratic rule and capitalism -- only to run smack into a global financial crisis.
Facing bank failures, turbulent markets and rapid inflation, Ukraine's politically fractured government imposed a series of emergency measures this week to shore up the economy.
At a news conference Tuesday, Prime Minister Yulia Tymoshenko dodged the question of whether Ukraine was seeking help from the International Monetary Fund, which would confirm fears about the state of Ukraine's economy. Instead, she offered broad assurances that there was no need for panic.
"The Ukrainian government is doing everything possible and impossible so that the impact of the global crisis on Ukrainian life, the Ukrainian economy is minimized," Tymoshenko said.
But an IMF official in Washington, who was not authorized to speak on the record and requested anonymity, confirmed that the lending organization was sending a mission Wednesday to discuss economic policies.
While the world's major economies snap up banks and bail out brokers, many modest-sized countries don't have such deep pockets.
Hungary's currency has skidded 20 percent. Stocks have fallen in Poland. In Estonia, real estate prices have dropped 40 percent.
Iceland, where stocks fell almost 70 percent Tuesday before rebounding, is trying to negotiate a multibillion-dollar loan from Russia.
Ukraine, which has been locked in a political struggle with Moscow since it elected a pro-Western government in 2004, certainly cannot go begging to the Kremlin.
Ukraine's inflation rate hit 31 percent in May compared with the same month the previous year, higher than any other country except Zimbabwe and Venezuela. The government scrambled and brought it down to a somewhat less shocking 16 percent rate as of September.
Faced with global economic uncertainty, depositors in Ukraine began frantically converting their local currency into dollars after the hryvna dipped by almost 20 percent, before clawing back some lost ground.
Analysts said the fall was because of investors pulling money out of Ukraine and many other emerging markets. The rate plunge stripped the banking system of $1.3 billion in the first two weeks of October.
Some analysts say that the emerging markets of the world's vibrant young capitalist economies will bounce back quickly, because many are still shaking off the effects of decades of totalitarian rule.
Even so, many seem destined to ride an economic roller coaster in the short term as real estate bubbles burst, banks go bust and consumer spending tanks.
Anders Aslund, an economic analyst, wrote in July that Ukraine's economic plight was not as bad as that of Russia in 1998, which plunged the country into a deep, prolonged recession.
Ukraine's state budget, he pointed out, had a healthy surplus, its public foreign debt was small and its national bank was flush with foreign currency reserves worth $36 billion.
But he still saw Ukraine facing "catastrophic" consequences if it failed to get inflation under control -- and predicted that real estate prices could fall by half, while half of all banks might go bankrupt.
The country's two leading magazines came out with nearly identical covers this week: Korrespondent showed a one-hryvna bank note going up in flames, and Focus displayed a one-hryvna coin melting down.
"Money is melting," warned Focus. "Hello crisis," Korrespondent announced.
Tymoshenko said Tuesday that the government was freezing transportation costs, lowering natural gas prices and planning to cap electricity costs for the steel and chemical industries, an effort to boost the core sectors of the national economy.
The government's measures follow a central bank freeze of selected retail accounts across the country, limits on loans and other measures to stabilize the currency.
"It looks like the National Bank is in control of the situation," said Volodymyr Dinul, an analyst with Renaissance Capital. "Let us hope that everything will calm down sooner rather than later."
One key to the financial problems in Ukraine, experts said, is a falling demand for steel, the country's key export commodity. Another factor is Ukrainians' mistrust of banks, founded on their painful experience with the hyperinflation following the 1991 collapse of the Soviet Union, which wiped out their savings.
Tymoshenko's government sought to compensate some of the losses from that crisis this year, but that proposal was stalled by her political feud with President Viktor Yushchenko.
(The Moscow Times