UKRAINE BUSINESS NEWS - ELEVEN ARTICLES
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1. MACROECONOMIC SITUATION IN UKRAINE STABILIZING,
SAYS IMF REPRESENTATIVE
Interfax Ukraine News, Kyiv, Ukraine, Fri, Oct 30, 2009
2. UKRAINE'S PRESIDENT DEFIES IMF WARNINGS
International Aid Is in Jeopardy After Increases in Minimum Wage, Pensions
By James Marson in Kiev, Ukraine and Alexander Kolyandr in London
The Wall Street Journal, New York, NY, Mon, Nov 2, 2009
3. IMF WARNS UKRAINE ON WAGE AND PENSION INCREASES
By Roman Olearchyk in Kiev, Financial Times, London, UK, Mon, Nov 2, 2009
4. UKRAINE - YUSHCHENKO SETS COLLISION COURSE WITH IMF
By Timothy Ash, BSMarketplace
Emerging Markets Strategy, EM Alert,CEEMEA
Royal Bank of Scotland, UK, Fri, Oct 30, 2009
5. UKRAINE IMF DEAL OFF-TRACK AS LEADER SIGNS WAGES BILL
By Sabina Zawadzki, Reuters, Kiev, Ukraine, Fri, Oct 30, 2009
6. IMF: NEW UKRAINE WAGE LAW THREATENS ECONOMIC STABILITY
By Meena Thiruvengadam, Dow Jones Newswires, Wash, D.C., Fri, Oct 30, 2009
7. UKRAINE'S NEW SOCIAL STANDARDS BILL AIMS AT BREAKING
RELATIONS WITH IMF SAYS FIRST DEPUTY PRIME MINISTER TURCHYNOV
Ukrainian News-on-line, Kyiv, Ukraine, Fri, Oct 30, 2009
8. UKRAINE'S PARTY OF REGIONS DOUBTS APPROPRIATENESS OF
CONTINUING COOPERATION WITH IMF
Ukrainian News-on-line, Kyiv, Ukraine, Tue, Oct 27, 2009
9. EBRD DOWNGRADES UKRAINE GDP FORECAST; TO SHRINK 14% IN 2009
Interfax, Kyiv, Ukraine, Fri, Oct 30, 2009
10. EBRD CAUTIONS CENTRAL AND EASTERN EUROPE ON CURRENCY DEBT
By Stefan Wagstyl, Financial Times, London, UK, Mon, Nov 2, 2009
11. EU TO LEND UKRAINE 500 MILLION EUROS, 100 MILLION TO BOSNIA
Reuters, Brussels, Belgium, Fri, Oct 30, 2009
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1. MACROECONOMIC SITUATION IN UKRAINE STABILIZING,
SAYS IMF REPRESENTATIVE
Interfax Ukraine News, Kyiv, Ukraine, Oct 30, 2009
KYIV - The macroeconomic situation in Ukraine is stabilizing, according to IMF (the International Monetary Fund) Resident Representative in Ukraine Max Alier.
"The program with Ukraine is rather successful... From the macroeconomic point of view the situation is stabilizing as a whole," he said on Friday at the annual conference organized by the Fitch rating agency in Kyiv.
"We have managed to understand each other. However, some people think that the IMF had came to settle all problems - political and social. Actually, we're focusing on the restoration of macroeconomic and financial stability," he said.
Alier did not assess the implementation of the IMF's requirements for cooperation with the fund, referring to the fact that talks are underway. He said that the fund's requirements could change, as they did earlier.
"We're modifying our requirements as the need arises," he said. Alier also said that the situation in the banking sector is stabilizing as a result of good progress in the recapitalization of troubled banks.
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2. UKRAINE'S PRESIDENT DEFIES IMF WARNINGS
International Aid Is in Jeopardy After Increases in Minimum Wage, Pensions
By James Marson in Kiev, Ukraine and Alexander Kolyandr in London
The Wall Street Journal, New York, NY, Monday, November 2, 2009
Ukraine's president defied warnings of the International Monetary Fund and approved an increase in social spending that will balloon the government deficit. The move will likely lead to a suspension of IMF lending to one of Europe's most fragile economies.
In response, ratings agency Standard & Poor's downgraded its outlook for Ukraine, while the IMF president said he is "very worried" by Ukraine's decision, according to Reuters. Ukraine's collision with the IMF comes amid jockeying among Ukraine politicians before presidential elections in January.
While IMF officials worry that an economic meltdown in Ukraine could spoil a fragile recovery in Europe, the country has also emerged as a testing ground for the integrity of IMF lending standards.
Earlier in the week, the IMF warned Ukraine President Viktor Yushchenko that he needed to veto the law boosting Ukraine's minimum wage and pensions if the country was to remain on track with the IMF lending program.
Mr. Yushchenko, who trails far behind major rivals in opinion polls, had remained noncommittal until Friday, when he announced to reporters that he had signed the bill. Mr. Yushchenko said he didn't want the country's budget problems to be solved "at the expense of pensioners, poor people and the disabled."
Of all the countries the IMF has helped this year, Ukraine has proved to be the most complex because of the tangled politics. The IMF delayed an earlier disbursement of money to keep pressure on Kiev. With local politicians denouncing the IMF for its austerity, the IMF's resident representative met this week with labor leaders and other officials to put forward a friendlier face.
But the president's action, in the face of a direct warning from the IMF, appears to leave little wiggle room.
IMF chief Dominique Strauss-Kahn told Reuters that Ukraine was now "off track and in this situation I'm afraid it would be very difficult to complete the next review of the program."
Mr. Yushchenko's move is seen as an effort to undermine his erstwhile ally of the Orange Revolution, Prime Minister Yulia Tymoshenko, who is now his bitter rival and far ahead of him in the opinion polls. The front-runner for the January ballot is Viktor Yanukovych, leader of the opposition Party of
Regions, whose lawmakers have frequently blocked parliament in recent months demanding rises in social spending.
On Friday, one of Ms. Tymoshenko's top advisers, Deputy Prime Minister Hryhoriy Nemyria called Mr. Yushchenko's move, which increases the minimum wage and pensions in the crisis-stricken country by 20%, "irresponsible" and "politically motivated." Mr. Nemyria said the government is in talks with the IMF to look for "exceptional solutions to this exceptional situation," but he declined to provide further details.
He said, though, that wage and pension rises jeopardize release of the next $3.8 billion tranche of an IMF bailout package and may also thwart financial help as well from the European Union and other financial institutions.
The IMF has already handed out almost $11 billion in loans to Ukraine since approving a $16.4 billion standby loan in the fall of 2008. These have helped to prop up distressed banks, plug holes in the budget and support the hryvnia, Ukraine's currency.
Rivalry between Mr. Yushchenko and Ms. Tymoshenko was intense long before the official beginning of the election campaign this week, and their continual disagreements have left the government largely in gridlock.
On Friday, Ms. Tymoshenko ordered schools closed across Ukraine and banned public meetings including election rallies for a three-week period after confirming its first death from H1N1 flu.
Mr. Yushchenko called off a public meeting in Kiev where he had been due to announce his election agenda, telling journalists that 11 people had died of H1N1, contradicting a Health Ministry report of only one fatality. An aide and a ministry official said Mr. Yushchenko may have made a mistake. (Write to Alexander Kolyandr at Alexander.Kolyandr@dowjones.com)
LINK: http://online.wsj.com/article/SB125695296143520285.html
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3. IMF WARNS UKRAINE ON WAGE AND PENSION INCREASES
By Roman Olearchyk in Kiev, Financial Times, London, UK, Mon, November 2, 2009
KIEV - The International Monetary Fund has warned that it could cut financial assistance to Ukraine, one of the world’s most recession hit economies, after the country veered “off track” by adopting populist wage and pension increases.
The warning came after Viktor Yushchenko, Ukraine’s president, on Friday signed the increases into law, ignoring warnings from the IMF and Yulia Tymoshenko, his prime minister and bitter rival. The standoff is rooted in a rivalry between Ukraine’s political leaders ahead of a hotly contested presidential election to be held in January.
Dominique Strauss-Kahn, the IMF head, said he was “very worried” over Mr Yushchenko’s decision to sign the bill. Almost $11bn in IMF assistance received since the global financial crisis broke has kept Kiev afloat financially.
The IMF is mulling whether to disburse an additional $3.8bn (euros2.6bn, £2.3bn) in November. It is seen as crucial to keeping Kiev stable in coming months, but Mr Strauss-Kahn said the 20 per cent wage and pension increases should be cancelled first.
Kiev found its finances stretched to the limit this year amid an 18 per cent drop in gross domestic product. The increases would cost an additional $10bn in expenditures, which government officials say simply do not exist in state coffers.
Ms Tymoshenko has accused Mr Yushchenko and other presidential candidates, including Viktor Yanukovich, of backing the increase to sabotage her government. Ms Tymoshenko’s supporters said her opponents hope to derail IMF co-operation and plunge Ukraine deeper into crisis, thereby undercutting her presidential bid.
Ms Tymoshenko’s opponents have accused the IMF of being soft on her government in dolling out bailout aid despite lacklustre efforts to adopt reforms.
Fears loom that such cut-throat rivalries could plunge Ukraine, a country where European banks hold a 40 per cent market share and where the west has jostled with Russia for influence, into a financial meltdown ahead of the elections.
On Friday, Vladimir Putin, the Russian prime minister, warned that a repeat of last January’s natural gas crisis could break out between both countries, once again cutting off supplies for Europe. Mr Putin, himself on friendly terms with Ms Tymoshenko, pointed the blame on Mr Yushchenko. He accused him of “blocking the transfer of funds” needed to pay for imported Russian gas.
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4. UKRAINE - YUSHCHENKO SETS COLLISION COURSE WITH IMF
By Timothy Ash, BSMarketplace
Emerging Markets Strategy, EM Alert, CEEMEA
Royal Bank of Scotland, UK, Friday, October 30, 2009
A few negative developments in Ukraine this morning, and bonds are trading a point or so down in response.
[1] First, and as we feared, President Yushchenko signed into law the bill passed in parliament on October 20 which hikes wages/pensions by 20%. The government has estimated that the bill would boost budget spending by several billion dollars this year, and by as much as US$10bn in 2010. In effect it will blow the planned IMF budget for 2010 out of the water, and complicate budget financing for 2009.
The IMF have been very easy in terms of its interpretation of the conditionality attached to the programme - standing in contrast to programmes elsewhere in the region, e.g. Latvia - appearing to cut the government some slack over plans to raise domestic gas prices. However, this would be a deal breaker for the fund in our minds. Indeed, the Fund stated in a press released dated October 25, that they required the bill to be vetoed.
This morning IMF MD Straus-Kahn has confirmed that the hiking of wages/pensions has put the IMF agreement "off-track" which suggests no further IMF disbursements until Ukraine resolves the issue over the hike in wages/pensions.
[2] Second, PM Putin appeared to re-ignite fears over a gas supply crisis with Ukraine, indicating that President Yushchenko is blocking gas payments to Russia; Yushchenko's office has denied this. Putin noted that Russia has paid gas transit fees to Ukraine through Q1 2010 and is not willing to provide funding for gas deliveries.
He also stressed that Ukraine needs to keep to existing gas supply contracts, i.e. payment for gas delivered each month, seven days following the end of the month. The problem/fear herein is that Ukraine is contracted to purchase 41 billion cu metres of gas annually from Russia.
This year, given reduced demand from gas-guzzling but recessed Ukrainian industry, it likely only imported around 30bn cu metres. If Ukraine was asked to buy the difference (cost of US$2.5bn), it would likely blow a big further hole in budget financing. Putin was not specific, but there seemed to be something of a veiled threat therein.
The minimum gas delivery option in the contract agreed earlier this year clearly gives Russia an option to undermine Ukraine's gas supply situation and also to potentially destabilise the domestic political situation, if it so desires.
At this stage it's probably not in Russia's interest to do this (Moscow has developed reasonably good relations with the two leading candidates in the forthcoming presidential contest, Tymoshenko and Yanukovych), but it maintains the option.
One read of Putin's comments are that by castigating Yushchenko for threatening gas deliveries/payments, he adds to the impression on he back of Yushchenko's support of the wage/pension hikes that he is acting irresponsibly, thereby perhaps finally killing any chance the incumbent president might have of re-election; Moscow can live with a Yanukovych/Tymoshenko presidency, but a Yushchenko second term would be beyond the pale.
[3] Third, S&P while affirming Ukraine's CCC+ rating moved the outlook from positive to stable. Fitch, meanwhile, indicated that its B rating on Ukraine would come under further downward pressure on the back of further global, domestic political and financial sector shocks.
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5. UKRAINE IMF DEAL OFF-TRACK AS LEADER SIGNS WAGES BILL
By Sabina Zawadzki, Reuters, Kiev, Ukraine, Fri, Oct 30, 2009
KIEV - Ukrainian President Viktor Yushchenko signed a bill on Friday that would raise the minimum wage by over 20 percent -- a move the International Monetary Fund chief said pushed its $16.4 billion bailout "off-track".
Uncertainty over IMF funding for Ukraine, one of Europe's worst performing economies, prompted credit ratings agency Standard & Poor's to cut its outlook to "stable" from "positive", while Fitch said the wage rises would pressure its own already low 'B' rating.
Prime Minister Yulia Tymoshenko has said the wage rises would place "an atom bomb under the finances of the country" and would cost an extra $10 billion. But Yushchenko told reporters: "I would like to inform you that I have signed the bill."
Analysts have said the issue has become a political football ahead of a Jan. 17 presidential election in which Yushchenko, his bitter rival Tymoshenko and former premier Viktor Yanukovich will run.
IMF CHIEF REACTS SWIFTLY
IMF chief Dominique Strauss-Kahn reacted to Yushchenko's decision swiftly, telling Reuters it concerned him greatly. "I'm very worried by the president's agreement to this bill which puts the programme we had signed off track and in this situation I'm afraid it would be very difficult to complete the next review of the programme," he said by telephone.
"That's why we are going to continue working with the Ukrainian authorities in the hope they can come together again to reach a position which would comply with the technical agreement we signed with the government."
The government has said it simply cannot afford the extra spending. As its revenues plummet, it has maintained social benefits but has also had to help state energy firm Naftogaz to pay billions for Russian gas imports.
Yushchenko and Tymoshenko have been embroiled in a fierce rivalry for 18 months that has blocked privatisations, delayed policy-making and once before hobbled the IMF programme.
Russian Prime Minister Vladimir Putin said on Friday Ukraine could have problems with its gas bills, raising the spectre of a repeat of January's row when Moscow cut gas supplies to Ukraine, affecting thousands in Europe.
WORLD'S RISKIEST DEBT
The IMF expects the economy to contract by up to 15 percent this year after industries ground to a virtual halt, steel exports plunged and the hryvnia currency lost over 60 percent last year, knocking the banking sector off balance.
S&P said the uncertainty over the IMF would sap investor confidence in the banking system and would also pressure the hryvnia. The currency was little changed on Friday at 8.095-8.195 a dollar. Last May it hit a peak of 4.474/$.
"Recent politically driven proposals to increase social expenditures imply a consolidated public sector deficit ... in excess of 10 percent of gross domestic product for 2009, which also reflects below-budgeted revenue collection," it said in a statement.
Analysts warned that if the increases come into force, the government would either pressure the central bank to print cash or be forced to raise already sky-high yields of over 27 percent on its domestic bonds to cover this year's budget gap.
Foreign debt insurance costs show Ukraine's debt to be the riskiest in the world with a 52 percent probability of default. Credit default swaps are quoted at a mid-price of 1200 basis points which means it costs $1.2 million a year to insure $10 million of debt against default or restructuring over five years.
In theory, Yushchenko's signature brings the law into force, but the government has said it would contest it in court.
Yushchenko chose to announce his move as Tymoshenko unveiled sweeping measures to combat a feared epidemic of the H1N1 swine flu, in which one person has died.
Yushchenko, underscoring the perilous state of the country's finances, said Ukraine would turn to international institutions and foreign partners for help to buy medical supplies if Ukraine could not find the cash itself. (Additional reporting by Daniel Flynn in Rome, Pavel Polityuk and Natalya Zinets in Kiev; Editing by Ruth Pitchford)
LINK: http://www.reuters.com/article/companyNewsAndPR/
idUSLU65139920091030?pageNumber=1&virtualBrandChannel=0
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6. IMF: NEW UKRAINE WAGE LAW THREATENS ECONOMIC STABILITY
By Meena Thiruvengadam, Dow Jones Newswires, Wash, D.C., Fri, Oct 30, 2009
WASHINGTON - A new law to boost minimum wages and pensions by 20% in Ukraine is a threat to the crisis-stricken country's economic stability, the head of the International Monetary Fund said Friday. "We are concerned about the implementation of the law," IMF Managing Director Dominique Strauss-Kahn said.
The statement comes after the IMF has doled out nearly $11 billion in loans to the eastern European nation as part of a larger $16.4 billion aid package but before it has approved the disbursement of the next installment of funding, valued at about $3.8 billion.
The new Ukrainian law could derail the loan arrangement between Ukraine and the IMF and jeopardize arrangements the country has made to receive a loan from the European Commission.
The IMF has said the law conflicts with the goals of its loan program. Earlier this week, the IMF said its program would allow for a 10% increase in wages and pensions, but that anything above that "would place an unsustainable burden on public finances."
A 10% increase would be in line with inflation, but Ukrainian trade unions have been pushing for more, saying current IMF restrictions are place an "excessive burden" of the country's fiscal adjustment on labor.
Complicating the situation is division among Ukrainian officials over the policy. Ukrainian President Viktor Yushchenko signed the law, but Deputy Prime Minister Hryhoriy Nemyria has called it "irresponsible" and "politically motivated."
Nemyria ally Prime Minister Yulia Tymoshenko is running against Yushchenko in an election scheduled for January. Nemyria said the government is in talks with the IMF to look for "exceptional solutions to this exceptional situation," but declined to provide further details.
Strauss-Kahn said Friday, "We understand that there is disagreement among the authorities on how to proceed, but we continue working with them in the hope that they come together to reach a position that will allow early completion of the review."
Ukraine has been among the countries hardest hit by the global recession. Its economy is projected to contract by 15% this year.
By Meena Thiruvengadam, Dow Jones Newswires; 202-862-6629; meena.thiruvengadam@dowjones.com. (Alexander Kolyandr contributed to this article.)
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7. UKRAINE'S NEW SOCIAL STANDARDS BILL AIMS AT BREAKING
RELATIONS WITH IMF SAYS FIRST DPM OLEKSANDR TURCHYNOV
Ukrainian News-on-line, Kyiv, Ukraine, Fri, Oct 30, 2009
KYIV - Ukraine's First Deputy Prime Minister Oleksandr Turchynov says the adoption of the law on higher social standards is aimed at breaking down relations with the International Monetary Fund. He made a statement to this effect speaking in interview with TV company Channel 5 on October 29.
In his opinion, through adoption of this law, President Viktor Yushchenko and Party of Regions leader Viktor Yanukovych are trying to break down Ukraine's relations with the International Monetary Fund. On top Turchynov added that Yuschenko recently refused to meet with the IMF mission.
In the first vice premiers words, the government is developing several scenarios of reacting to Yushchenko's possible approval of the law on higher social standards.
We are developing several scenarios how to counteract this. Yet, I stress, it is hard to imagine a provocation greater than the one mentioned by Mr. President, Turchynov said. He emphasized that adoption of the social standards law is the war against the state rather than against the government alone.
As Ukrainian News reported, Yuschenko expressed the intention to sign into law the bill on social standards adopted by Verkhovna Rada on October 20.
The IMF, as well as Prime Minister Yulia Tymoshenko and the Finance Ministry of Ukraine urged Yushchenko to veto the bill.
Verkhovna Rada fixed the minimum wage (which is now UAH 669 per month) at the level of UAH 744 from November 1, 2009; UAH 869 from January 1, 2010; UAH 884 from April 1, 2010; UAH 888 from July 1, 2010; UAH 907 from October 1, 2010; and at the level of UAH 922 per month from December 1, 2010.
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8. UKRAINE'S PARTY OF REGIONS DOUBTS APPROPRIATENESS
OF CONTINUING COOPERATION WITH IMF
Ukrainian News-on-line, Kyiv, Ukraine, Tue, Oct 27, 2009
KYIV - The Party of the Regions doubts whether it is appropriate for Ukraine to continue cooperating with the International Monetary Fund. The press service of the party announced this in a statement.
According to the party, the issue of whether it is appropriate for Ukraine to continue cooperating with the International Monetary Fund has arisen because the IMF bases its financial decisions on political expediency, ignores the Ukrainian parliament’s decisions, and violates its own statutes.
The party expressed surprise at the IMF’s position that it is unacceptable to raise the minimum wage and pension, the IMF’s positive assessment of the use of IMF loans to pay for Russian natural gas, and the allegation that the IMF is financing Prime Minister Yulia Tymoshenko as probable presidential candidate.
According to the Party of the Regions, the IMF mission is ignoring the fact that the Cabinet of Ministers failed to fulfill its obligation to keep the state budget’s deficit at a maximum of 5% and ensure transparent and efficient government procurements.
Moreover, according to the Party of the Regions, the IMF mission ignored the party’s information that the State Treasury stopped conducting settlements with local budgets in mid-September because the party believes that the government has taken funds from local budgets and used it to finance its own needs.
The Party of the Regions is also concerned at the lack of sufficient information about the agreement that the IMF mission reached with the Ukrainian authorities on amendment of its assistance program.
As Ukrainian News earlier reported, the IMF recently called on President Viktor Yuschenko to veto the law that provides for raising the minimum wage and pension.
The IMF has rejected the allegation by Ukrainian opposition forces that it is financing Tymoshenko as a probable presidential candidate. Tymoshenko expects to Ukraine to continue its cooperation with the IMF. According to Tymoshenko, continuation of cooperation with the IMF will enable Ukraine to balance its financial system at all levels.
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9. EBRD DOWNGRADES UKRAINE GDP FORECAST;
TO SHRINK 14% IN 2009
Interfax, Kyiv, Ukraine, Fri, Oct 30, 2009
KYIV - The European Bank for Reconstruction and Development (EBRD) now believes Ukraine's GDP will shrink 14% in 2009 compared with its earlier forecast for a 10% contraction,the bank said in a statement. However, the bank now believes Ukraine's GDP will grow 3% in 2010 compared with its forecast for zero growth previously.
Ukraine's economy was hit hard by the crisis,and the outlook for a rapid recovery is limited by weak foreign and domestic demand,the statement says,citing EBRD chief economist Alexander Pivovarsky.
The pressing challenges for the nation's leadership are to prevent the monetization of state debt,bring the state budget deficit under control and stabilize the financial system, he said.
Enabling a steady,high rate of economic growth over the long-term requires deep structural and institutional reform,perhaps in the context of drawing nearer to the EU, he said.
The Ukrainian government's official forecast is for GDP to grow 0.4% in 2009, although unofficially it is expected to fall 10%-12%. The government forecasts GDP to grow 3.7% in 2010.
The World Bank forecasts Ukrainian GDP to shrink 15% this year and grow 2.5% in 2010. The International Monetary Fund (IMF) forecasts GDP to contract 14% in 2009 and grow 2.7% in 2010.
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10. EBRD CAUTIONS CENTRAL AND EASTERN EUROPE ON CURRENCY DEBT
By Stefan Wagstyl, Financial Times, London, UK, Mon, Nov 2, 2009
LONDON - Central and eastern Europe must get rid of its “addiction to foreign currency debt” by improving macroeconomic management, building local currency markets and tightening regulation, says the European Bank for Reconstruction and Development in a hard-hitting report published on Monday.
In a review of the impact of the global financial crisis, the bank says international financial integration was generally good for central and eastern Europe (CEE) by bringing in credit and capital, principally from western Europe.
But financial integration brought “significant costs” by “encouraging credit booms and over-borrowing, and possibly in biasing the denomination of borrowing towards foreign currency”.
Attempting to reverse financial integration would be wrong, but policymakers face a “critical need” for controlling its future development. They must, says the EBRD, counter a bias towards foreign exchange borrowing that “could continue to pose a threat to stability”. They must develop instruments to mitigate future credit booms and improve management of the results of such booms.
The report comes after months of questioning of the role of foreign banks in CEE, particularly in central Europe, the Baltic states and the Balkans, where west European banking groups are dominant.
When the financial crisis struck last year after the collapse of Lehman Brothers, the US investment bank, there were fears international lenders might leave the region to concentrate on domestic operations.
With the support of the European Union, the International Monetary Fund and other international financial institutions, the danger was averted and banks were persuaded to pull together, including in vulnerable states such as Latvia, Hungary and Ukraine, which received big EU/IMF rescue packages.
But once the dust settled, policymakers asked whether the region’s exposure to foreign banks – which is unusually high among emerging economies – itself contributed to the crisis.
The EBRD report says it did, but the benefits outweigh the costs. Erik Berglof, chief economist, says: “The fundamental growth model for the region remains intact. However, the crisis has highlighted weaknesses. There are lessons to be learnt.”
Among these is reducing the dependence on foreign currency debt. The bank recommends countries focus on stabilising inflation so that upward pressures on local interest rates are reduced, cutting borrowers’ appetite for foreign currency loans. It calls for the development of local currency and bond markets to enlarge local funding sources, especially for long maturity loans such as mortgages.
The EBRD also urges officials to impose regulatory limits on foreign currency exposure for banks, companies and households.
LINK: http://www.ft.com/cms/s/0/98345ca4-c71c-11de-bb6f-00144feab49a.html
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11. EU TO LEND UKRAINE 500 MILLION EUROS, 100 MILLION TO BOSNIA
Reuters, Brussels, Belgium, Friday, October 30, 2009
BRUSSELS -The European Commission proposed to European Union governments on Friday lending Ukraine up to 500 million euros ($741 million) and Bosnia and Herzegovina 100 million euros to help them battle economic crisis.
'The assistance would support implementation of the adjustment programme agreed by the Ukrainian government with the International Monetary Fund to help the country through the global crisis,' the European Union's executive arm said. Ukraine, hit hard by the global economic crisis, agreed a $16.5 billion stand-by loan with the IMF in November 2008.
Ukrainian President Viktor Yushchenko said on Friday he had signed a bill for wage rises which could put into jeopardy a $3.8 billion bailout tranche from the International Monetary Fund.
The IMF said on Sunday the bill, which would raise the minimum wage by over 20 percent by the end of next year at an additional cost an extra $10 billion, should be shelved before it could decide on releasing the funds.
The Commission did not specify in what installments and when the money would be paid to Kiev, only that the loan was conditional on Ukraine sticking to the economic adjustment programme it had agreed with the IMF.
For Bosnia and Herzegovina, the Commission said the loan would be paid out, tentatively, in the second and fourth quarters of 2010. But it also noted it hinged on Bosnia and Herzegovina respecting its adjustment plan agreed with the IMF.
The EU's macro-financial assistance is an exceptional EU crisis response instrument available to EU neighbours. The loans are financed through EU borrowing on the market and the money is lent on similar financial terms. (Reporting by Jan Strupczewski, editing by Mike Peacock, n.strupczewski@reuters.com)
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