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EASTWEEK
Weekly analytical newsletter on Russia, Ukraine, Belarus, the Caucasus and Central Asia (also available in Polish as Tydzień na Wschodzie)

Contents

No. 40(149) | 2008-12-10
Full text available in PDF

Analyses

  • Pro-government majority reconstituted in the Ukrainian parliament

    On 9 December, the parliament of Ukraine appointed Volodymyr Lytvyn as its new speaker. Subsequently, Lytvyn officially announced the creation of a coalition composed of the Yulia Tymoshenko Bloc, Our Ukraine/People's Self-Defence and the Lytvyn Bloc. This means that early elections are no longer necessary. The parliament has regained its capacity to act, Yulia Tymoshenko has gained a certainty that she will keep the prime minister's post, perhaps even until the presidential election planned in early 2010, and President Viktor Yushchenko, who consistently opposed this coalition, has suffered another defeat, irrespective of whether or not the new coalition will prove effective and durable.

  • Georgia: is Saakashvili's team starting to erode?

    Between 5 and 8 December, Georgian politics witnessed several unexpected changes in the composition of the council of ministers and a number of other reshuffles and dismissals within the ruling team. These major reshuffles seem to be President Mikheil Saakashvili's attempt to strengthen his position in the state, in connection with the fact that several of his former close aides have recently moved over to open opposition. If this decomposition of the ruling team continues, a new force may emerge in Georgia's political scene in the coming months, which may be capable of challenging Saakashvili's power, and forcing the country's leadership to hold early elections.

Events

 

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Ukraine: The National Bank of Ukraine destabilises the currency market
EASTWEEK

2008-12-10

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On December, the National Bank of Ukraine set the official exchange rate of the hryvnia at nearly 7.40 to the American dollar, thus acknowledging the dynamic depreciation of the hryvnia by 59% over three months. The weakening of the hryvnia has been caused by pressure brought by growing demand on the currency market; this should be blamed on the central bank, whose successive decisions have instilled a sense of unpredictability in the market.

The main problem concerning the NBU's activities, the objective of which has been to stabilise the exchange rate of the Ukrainian currency, is the inconsistency and unpredictability of the measures taken. The NBU imposed administrative restrictions on particular segments of the market, and then lifted them fairly quickly. It announced interventions in the market that never took place. It set a desired exchange rate, but then took no measures to protect it. At the same time, it granted refinancing loans to selected banks in order to improve liquidity in the banking system, and the loans were then converted into currency, thus creating additional demand in the currency market.

The NBU's unpredictable policy has reinforced the negative market trends stemming from the imbalance of the current payments account; in October, the deficit in this account was covered from the NBU's currency reserves for the first time.

As a result, the currency market became seriously destabilised. The only way to restore its stability is for the central bank to implement a consistent policy, especially in terms of exchange rate projections and the principles governing currency market interventions. <AnG>

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