Ukraine Tightens Currency Controls as IMF Deal Gives Little Help
(Bloomberg) — Less than two weeks after the International
Monetary Fund announced a $17.5 billion bailout plan for
Ukraine, the central bank tightened capital controls to prevent
the country from running out of foreign currency.
In spite of what has been pledged, Ukraine hasn’t received
a major injection of IMF cash since a $1.4 billion disbursement
on Sept. 3, the lender’s website shows. With its foreign
reserves dropping 61 percent to $6.4 billion in the four months
through January, the country’s “cupboard is basically bare,”
said Timothy Ash from Standard Bank Group Plc.
Central bank Governor Valeriya Gontareva announced new
limits on the amount of foreign exchange available to importers
and banned banks from lending money for clients to buy foreign
currency. More restrictions may follow as the country’s economy
contracts amid a deadly conflict with pro-Russian rebels in the
country’s east, Gontareva said on Monday. The hryvnia fell as
much as 11 percent per dollar and bonds tumbled.
“Aid can’t come fast enough,” Richard Segal, head of
emerging-markets credit strategy at Jefferies International Ltd.
in London, said by phone Monday. “The way things are going, the
central bank may need to declare a moratorium on money leaving
the country, perhaps through an interruption in debt servicing
as Argentina did.”
Ukraine’s $2.6 billion of 9.25 percent bonds due in July
2017, the sovereign’s benchmark security for foreign investors,
dropped for a seventh day to an all-time low of 41.5 cents on
the dollar at 7:24 p.m. in Kyiv, increasing the yield to 56.43
percent. The hryvnia weakened to a record 31.5 per dollar on
Monday before recovering to 28, the same level at which it
closed on Friday, according to data compiled by Bloomberg.
Stalled Payouts
The IMF-led aid package, announced on Feb. 12, totals $40
billion when including bilateral deals with nations as well as
about $15 billion in savings expected from negotiations the
country is purusing with bond investors.
The Washington-based lender has stalled payouts under a
previous funding plan as the nation held presidential elections
in October, lawmakers delayed the passage of this year’s budget
and while the sides negotiated the second bailout.
“The implementation of strong policies and reforms under
the new IMF program, including a flexible exchange rate, will
help the economy adjust and lay the basis for a return of growth
and confidence,” an IMF spokesman said by e-mail on Monday.
“However, in the short term, tightening of the administrative
measures on a temporary basis may be necessary to support the
foreign exchange market.”
Ukraine’s debt is poised to extend declines as investors
are underestimating losses in the country’s planned debt
reorganization, analysts at Goldman Sachs Group Inc. and
JPMorgan Chase Co. said on Friday in separate reports.
IMF Lifeline
“Ukraine is bankrupt and the only reason the bonds are
trading at 40-45 is because of IMF involvement,” Dmitri
Barinov, a money manager who oversees $2.6 billion of emerging-market bonds at Union Investment Privatfonds GmbH in Frankfurt,
said by e-mail on Monday. “Ukraine has neither the possibility
nor the willingness to pay its debt, but will be forced to
restructure under IMF conditions.”
The hryvnia’s 44 percent depreciation per dollar this year,
following a 48 percent drop in 2014, is driving up the prices of
imports and energy, while making external debt payments more
difficult for Ukraine. Governor Gontereva yielded control of the
currency earlier this month, allowing it to weaken in an IMF-backed move which helped eliminate an unofficial street market
for currency transactions.
“The National Bank of Ukraine has few options, with the
West still dragging its feet over financial support,” Ash, the
chief emerging-markets economist at Standard Bank in London,
said by e-mail. “History will judge Western leaders very poorly
for how they have managed” to help Ukraine, he said.
To contact the reporters on this story:
Gavin Serkin in London at
gserkin@bloomberg.net;
Marton Eder in Budapest at
meder4@bloomberg.net;
Agnes Lovasz in London at
alovasz@bloomberg.net
To contact the editors responsible for this story:
Wojciech Moskwa at
wmoskwa@bloomberg.net;
Balazs Penz at
bpenz@bloomberg.net
Andrew Langley