Ukraine: Caught Between A Rock And A Hard Place
Welcome to the Ukraine, the country with the lowest credit rating in Europe. S&P last month cut Ukraine's long-term foreign currency rating to CCC+, seven levels below investment grade, or equivalent to that of Pakistan.
S&P defines Ukraine's credit rating as “currently vulnerable to nonpayment, and is dependent upon favourable business, financial and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.”
The average Ukrainian wage fell by 16.8% in January (to UAH 1,665 per month) over the level of December, according to the State Statistics Committee. Meanwhile year on year inflation was running at 22.3% in January. That's right, incomes are dropping like a stone, whilst the cost of living is sky-rocketing.
In addition to the drop in real wages (and the rise in unemployment), there is a problem with unpaid salaries. As of Feb. 1, 2009, the volume of unpaid salaries and wages was up by 35.7% compared to January 1.
This week the Ukraine ordered 17 of the country's largest banks not to sell the local currency, the hryvnia, at a weaker level than the exchange rate set by the central bank in a bid to arrest the currency’s alarming tumble against the dollar.
The Ukrainian hryvnia has fallen more than 40 percent against the dollar in the past six months. That makes it the second weakest currency in the world, a dubious honour eclipsed by only the Zimbabwe Dollar. This has caused the central bank to drain a third of its foreign reserves in an attempt to arrest the decline.
The country is set receive a $16.4 billion bailout from the International Monetary Fund, but only on the condition that it avoids further depletion of reserves.
Exactly how it manges to do that, whilst keeping the currency at the state-imposed exchange rate of 7.98 per dollar will take some doing.
No wonder companies like Landkom are scaling back their operations in Ukraine. And as for your average farmer, it would seem that agricultural inputs such as fertiliser and pesticides are going to be out of the question for most, no matter how much they'd like the dollars that higher yields would bring.
It would seem that there are possible comparisons to be drawn here all across eastern Europe too. The Polish zloty and Hungarian forint are also down by around 40% against the dollar since last July, with the Czech koruna, the Russian ruble and the Romanian leu down by around a third.
S&P defines Ukraine's credit rating as “currently vulnerable to nonpayment, and is dependent upon favourable business, financial and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.”
The average Ukrainian wage fell by 16.8% in January (to UAH 1,665 per month) over the level of December, according to the State Statistics Committee. Meanwhile year on year inflation was running at 22.3% in January. That's right, incomes are dropping like a stone, whilst the cost of living is sky-rocketing.
In addition to the drop in real wages (and the rise in unemployment), there is a problem with unpaid salaries. As of Feb. 1, 2009, the volume of unpaid salaries and wages was up by 35.7% compared to January 1.
This week the Ukraine ordered 17 of the country's largest banks not to sell the local currency, the hryvnia, at a weaker level than the exchange rate set by the central bank in a bid to arrest the currency’s alarming tumble against the dollar.
The Ukrainian hryvnia has fallen more than 40 percent against the dollar in the past six months. That makes it the second weakest currency in the world, a dubious honour eclipsed by only the Zimbabwe Dollar. This has caused the central bank to drain a third of its foreign reserves in an attempt to arrest the decline.
The country is set receive a $16.4 billion bailout from the International Monetary Fund, but only on the condition that it avoids further depletion of reserves.
Exactly how it manges to do that, whilst keeping the currency at the state-imposed exchange rate of 7.98 per dollar will take some doing.
No wonder companies like Landkom are scaling back their operations in Ukraine. And as for your average farmer, it would seem that agricultural inputs such as fertiliser and pesticides are going to be out of the question for most, no matter how much they'd like the dollars that higher yields would bring.
It would seem that there are possible comparisons to be drawn here all across eastern Europe too. The Polish zloty and Hungarian forint are also down by around 40% against the dollar since last July, with the Czech koruna, the Russian ruble and the Romanian leu down by around a third.