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.
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 $5.5 billion loan from Russia.
Ukraine,
which has been locked in a political struggle with Moscow since it
elected a pro-Western government in 2004, certainly can`t 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 (pronounced HRIV-nyah`) dipped by almost 20 percent,
before clawing back some lost ground.
Analysts said the fall was
due to 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
so-called 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 showing a
one-hryvna bank note going up in flames, and Focus displaying a
one-hryvna coin melting down.
"Money is melting," warned Focus. "Hello crisis," Korrespondent announced.
Tymoshenko
announced 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 say, 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 long-ago crisis this year, but
that proposal was stalled by her political feud with President Viktor
Yushchenko.
One of the triggers for the current crisis was the
trouble at two major banks, the sixth-largest Prominvest, which has
been taken over by the central bank, and the seventh-largest Nadra,
which has survived thanks to a $300 million central bank loan.
Fitch
Ratings, a global credit rating agency, on Monday downgraded Nadra and
noted that Ukrainian banks faced "challenging times" as near-term risks
increased considerably.
Ukraine`s main stock index, PFTS, closed
with a minuscule 0.8 percent gain Tuesday, following the positive
global trend and reacting to the government efforts. The stock market
has lost nearly 70 percent since the beginning of this year, after a
record 130 percent rise in 2007.
Independent financial analyst
Geoff Smith said an aid package adopted by the G-7 leaders bodes well
for Ukrainian banks, since European banks had stakes in nearly half of
local banks.
"After the G-7 rescue plan, I am cautiously
optimistic the Ukrainian banking system will in general withstand the
crisis," said Smith.
Others remained concerned, saying the central bank`s drastic measures showed the banking sector was in deep trouble.
The
crisis has been aggravated by Ukraine`s political deadlock, and the
current crisis over control of parliament. That crisis deepened
Tuesday, after Tymoshenko refused to heed Yushchenko`s order and
release government money to pay for early parliamentary elections he
called for Dec. 7.
Tymoshenko, seen as Yushchenko`s rival in the
2010 presidential vote, is battling to retain her office and avoid a
third parliamentary ballot in three years. Yushchenko is determined to
push through with the election and has abolished a court that froze
election preparations.
AP
