**UKRAINIAN ECONOMIC AND FINANCIAL DEVELOPMENTS**

**FOR THE WEEK ENDING JANUARY 7.**

** **

15 JANUARY 2000

SOURCE: US EMBASSY KIEV

 

-------

SUMMARY

-------

 

1. THIS CABLE SUMMARIZES UKRAINIAN ECONOMIC AND

FINANCIAL DEVELOPMENTS WRITTEN ABOUT IN THE PRESS

DURING THE WEEK ENDING JANUARY 7.  INFLATION TOTALED

19 PERCENT IN 1999. MOODY'S REDUCED UKRAINE'S LONG-

TERM CREDIT RATING ON SOVEREIGN FOREIGN CURRENCY DEBT.

THE SPF FELL SHORT OF PRIVATIZATION REVENUE TARGETS.

THE BUDGET DEFICIT EXCEEDED ITS LEGAL LIMIT.

UKRAINE'S BANKS FACED NO Y2K-RELATED PROBLEMS.  THE

NBU WILL REQUIRE THE TEN LARGEST COMMERCIAL BANKS TO

SUBMIT AUDIT REPORTS WITHIN THE FIRST FOUR MONTHS OF

THE FISCAL YEAR. END SUMMARY.

 

-----------------------------------------------------

1999 INFLATION TOTALED 19 PERCENT; DECEMBER 4 PERCENT

-----------------------------------------------------

2. INFLATION TOTALED 19.2 PERCENT IN 1999, ACCORDING

TO THE STATE STATISTICS COMMITTEE (SSC).  THE

INFLATION RATE FOR THE MONTH OF DECEMBER WAS 4.1

PERCENT, THE YEAR'S HIGHEST MONTHLY INCREASE.  THE GOU

HAD PREVIOUSLY REVISED THE OFFICIAL INFLATION RATE

FORECAST (INCLUDED IN THE BUDGET) DOWNWARD FROM 19.1

TO 16 PERCENT. EXPERTS ATTRIBUTED THE END-OF-THE-YEAR

INFLATION SURGE TO THE INFLUX OF CASH THAT RESULTED

FROM THE GOU'S PAYMENT OF SOCIAL ARREARS.

 

-------------------------------------------------

MOODY'S REDUCES UKRAINE'S LONG-TERM CREDIT RATING

ON SOVEREIGN FOREIGN CURRENCY DEBT

-------------------------------------------------

 

3. ON JANUARY 5, MOODY'S RATING AGENCY LOWERED

UKRAINE'S LONG-TERM CREDIT RATING ON SOVEREIGN FOREIGN

CURRENCY DEBT FROM "B3 WITH A NEGATIVE OUTLOOK"TO

CAA1. MOODY'S PRESS RELEASE EXPLAINED THAT UKRAINE'S

INTERNATIONAL CREDIT RATING WAS REDUCED BECAUSE

MOODY'S BELIEVED THE GOU WOULD SEEK TO RESCHEDULE ITS

FOREIGN CURRENCY BOND COMMITMENTS.  MOODY'S KEPT

UKRAINE'S MID-TERM FOREIGN BANK DEPOSITS RATING AT

CAA3 AND RAISED UKRAINE'S RATING FOR LONG-TERM

DOMESTIC CURRENCY DEBT FROM CA TO "CAA3 WITH ASTABLE

OUTLOOK" BASED ON THE SUCCESSFUL RESTRUCTURING OFMUCH

OF UKRAINE'S LOCAL CURRENCY DEBT INTO FOREIGN DEBT

INSTRUMENTS. HOWEVER, MOODY'S BELIEVED THAT, IN SPITE

OF THE LATEST RESCHEDULING OF GOU DOMESTIC

COMMITMENTS, THERE WAS STILL A HIGH RISK OF DEFAULT ON

NEW DOMESTIC DEBTS IN THE FUTURE.

 

------------------------------------------------

SPF FALLS SHORT OF PRIVATIZATION REVENUE TARGETS

------------------------------------------------

 

4. THE STATE PROPERTY FUND (SPF) FELL AT LEAST UAH

100,000 SHORT OF ITS 1999 PRIVATIZATION REVENUE TARGET

OF UAH 800,000, SPF DEPUTY HEAD MYKAILO CHECHETOV

REPORTED. CHECHETOV SAID THAT THE TARGET FIGURE WOULD

HAVE BEEN ACHIEVED HAD ENTERPRISES SCHEDULED FOR

TENDER NOT BEEN UNEXPECTEDLY WITHDRAWN.  THE SPF SET A

REVENUE TARGET OF UAH 2.5 BILLION FOR THE YEAR 2000.

 

-------------------------------------------------

1999 BUDGET DEFICIT EXCEEDED LEVEL ALLOWED BY LAW

-------------------------------------------------

 

5. THE STATE BUDGET DEFICIT EXCEEDED THE LEVEL ALLOWED

BY LAW, TOTALING UAH 1.53 BILLION AS OF DECEMBER 1,

THE MINISTRY OF FINANCE REPORTED.  THE 1999 STATE

BUDGET LAW MANDATED THAT THE DEFICIT NOT EXCEED UAH

1.24 BILLION. THE BUDGET DEFICIT SURGED BEFORE THE

PRESIDENTIAL ELECTIONS, WHEN THE GOU MADE MASSIVE

PAYMENTS TO CLEAR SOCIAL ARREARS.  THE GOVERNMENT WAS

UNABLE TO REDUCE THE DEFICIT BECAUSE OF SUBSEQUENT

REVENUE SHORTFALLS IN NOVEMBER AND DECEMBER, FINANCE

MINISTER IHOR MITYUKOV SAID.

 

---------------------------------------------

 

UKRAINE'S BANKS FACED NO Y2K-RELATED PROBLEMS

---------------------------------------------

 

 

6. ON JANUARY 5, THE NBU REPORTED THAT UKRAINE'S

BANKING SYSTEM HAD REGISTERED NO Y2K-RELATED PROBLEMS.

AFTER SUSPENDING BANKING OPERATIONS ON DECEMBER 31,

THE BANKS SUCCESSFULLY RESUMED WORK ON JANUARY 4.

ACCORDING TO THE REPORT, THE BANKS WERE ABLE TO

CONDUCT ALL OF THE PAYMENTS USING THE INTERBANK

PAYMENTS SYSTEM, AND TO MAKE PAYMENTS TO THEIR

CLIENTS.

 

--------------------------------------------------

INTERNATIONAL AUDIT REQUIRED FOR TEN LARGEST BANKS

--------------------------------------------------

 

 

7. ON DECEMBER 30, THE NBU ANNOUNCED THAT IT WOULD

REQUIRE THE TEN LARGEST UKRAINIAN COMMERCIAL BANKS TO

CONDUCT INTERNATIONAL AUDITS AND SUBMIT THE RESPECTIVE

REPORTS TO THE NBU WITHIN THE FIRST FOUR MONTHS OF THE

FISCAL YEAR. THE BANKS INCLUDED PROMINVEST, PRIVAT,

UKRAINA, EXIM, AVAL, UKRSOTS, OSHCHADNY, FIRST

UKRAINIAN INTERNATIONAL, AND SLOVYANSKY.  THE MEASURE

WAS AIMED AT INCREASING THE TRANSPARENCY OF THE

BANKING SYSTEM.

 

--------------

 

EXCHANGE RATES

--------------

 

 

8. HRYVNIA/DOLLAR EXCHANGE RATES WERE AS FOLLOWS:

                01/03  01/04  01/05  01/06  01/07

                -----------------------------------

OFFICIAL RATE    5.2163 5.2163 5.2163 5.2189 5.2194

KIEV CASH RATE HOLIDAY5.5290 5.5320 5.5320 HOLIDAY