GLOBAL ECONOMIC MELTDOWN: Ukraine On The Brink Of A Monumental Societal Collapse – Kiev Hike Rate To 30% To Avert Hyperinflation And Currency Plunge; Introduces Rationing As Hryvnia Causes Shopping Binge; Fourth Largest Lender Delta Bank Insolvent!

March 3, 2015 – UKRAINE – The following stories paint a dire picture of the current situation in Ukraine,  as extremely critical economic and fiscal conditions are pushing the country to the brink of a monumental societal collapse.

Ukraine hikes rate to 30%, to avert hyperinflation and currency plunge

Ukrainian hryvnia banknotes (Reuters/Konstantin Chernichkin)

The Central Bank of Ukraine is raising its benchmark interest rate to 30 percent from 19.5 percent, the biggest increase in 15 years. It reflects the bank’s attempt to save the collapsing economy from hyperinflation that some estimate at 272 percent.

The new refinancing rate becomes effective from Wednesday, Ukraine’s Central Bank said Tuesday.

This is the second rate increase this year, as the bank raised it in February to 19.5 percent from 14 percent.

The decision was taken because the bank saw the “threat of inflation had risen strongly due to negative consequences from currency market panic,” the Central Bank chief Valeriya Gontareva said in a media briefing.

The bank also kept in place the requirement for companies to sell about 75 percent of their foreign currency earnings, which is also hoped, will stabilize the hryvnia. Gontareva hopes it will return the currency to a level of 20-22 to the US dollar “quickly”.

Hryvnia Rallies To 1-Month Highs After Ukraine Raises Benchmark Rate To 30%

The domestic currency, the hryvnia, has lost about 70 percent since the start of the Maidan unrest a year ago. On Tuesday it was trading at 26 hryvnia to the Dollar, while a year ago a greenback bought 8 hryvnia.

This is pushing up inflation, with official numbers showing prices are rising by 28.5 percent in annual terms. However, separate research by Johns Hopkins professor Steve Hanke suggests the real inflation rate is 272 percent, the world’s highest, and well above Venezuela’s 127 percent rate.

​Kiev introduces rationing, as falling hryvnia causes shopping binge

Reuters/Eduard Korniyenko

Ukrainian supermarkets have imposed rationing of basic products after the drastic fall in the value of the hryvnia. The currency has lost 70 percent of its value causing people to stockpile food and buy electronics as a hedge.

Restrictions apply for goods such as cooking oil, flour and sugar, Ukraine’s news agency UNN reports Wednesday. Retailers may sell no more than two bottles of sunflower oil, and two packs of buckwheat per customer and, depending on the store, from 3 to 5 kilograms of flour and sugar.

Bread, rice, potatoes, meat and milk are not yet rationed, but are not so plentiful on supermarket shelves.

Stores have also see higher demand for household appliances, as people consider consumer electronics an investment as prices increase on a daily basis, RIA reports. Inflation in Ukraine is expected to reach 27 percent by the end of 2015.

Hryvnia’s fall

The rush to buy was triggered by the dramatic depreciation of Ukraine’s hryvnia which lost 70 percent of its value against other currencies in just a year. The conflict in Eastern Ukraine and international reserves only enough to last for two months, are among the key reasons for the hryvnia’s fall.

The devaluation accelerated after the National Bank of Ukraine (NBU) let the hryvnia free float in early February.

Ukraine is currently in a deep political crisis reflected in its economy and budget. The country is balancing on the brink of default. Prime Minister Arseny Yatsenyuk says Ukraine’s task for 2015 is “to survive” and that all people would face tough challenges no matter what their place in society. According to the NBU the country’s GDP plunged by 7.5 percent in 2014.

The minimum weekly wage in Ukraine is less than $43 (1,218 hryvnia) which is lower than in Bangladesh, Ghana and Zambia ($46.6)

The official exchange rate set by the National Bank for February 24 is 28.29 hryvnia to the dollar and 31.96 to the euro. Exchange offices sell the dollar at more than 40 hryvnia and the euro at about 50.

In an attempt to stop the currency’s free fall the National Bank of Ukraine stepped up its currency controls Wednesday, preventing banks from buying any foreign currency for clients this week and limiting what they could buy for themselves.

Prime Minister Arseny Yatsenyuk criticized the decision saying it doesn’t add stability to the Ukrainian economy.

“This morning I learned that the NBU on its own, without consultation, decided to close the interbank market that surely doesn’t add stability to hryvnia,”
he said talking at Wednesday’s Cabinet meeting.

Meanwhile Ukrainian President Petro Poroshenko called for the head of the NBU Valeriya Gontareva to “stop messing with the exchange rate” and gave her a week to solve the issue, Ukrainian media reported Wednesday.

Ukraine’s fourth largest lender Delta Bank insolvent – central bank

Photo from facebook.com/deltabank

The fourth biggest bank in Ukraine, Delta Bank, has gone bankrupt after months of non-compliance, according to the National Bank of Ukraine. Two smaller banks in the Delta Banking group have also gone belly-up.

“The National Bank of Ukraine (NBU) adopted a resolution on the assignment of JSC Delta Bank to the category insolvent on March 2,”
says the NBU website on Tuesday. The failure of Delta Bank owner’s to take timely, efficient and sufficient measures to restore the bank’s financial health and viability and bring its operations into compliance with Ukrainian laws was given as the main reason for the NBU’s decision.

“The principal shareholder and the management team of Delta Bank JSC have opted for a high-risk strategy of rapid growth through the acquisition of poor-quality assets,”
the statement said.

Ukraine’s monetary authorities have appeared desperate and nervous in their attempts to try to save the country’s ailing economy.

On Tuesday, Ukraine’s Central Bank announced an increase of its benchmark rate to 30 percent from 19.5 percent as part of a package of measures aimed at saving the collapsing economy and stabilizing the country’s financial system. The move came after the bank’s decision last week to end currency controls to stop the currency free fall. The Ukrainian hryvnia has lost half of its value in the last two months. However, the decision was overturned in less than 24 hours after criticism from Prime Minister Yatsenyuk and President Petro Poroshenko’s of the country’s Central Bank head Valeriya Gontareva.

On Monday, while revising the country’s budget for 2015 and introducing austerity measures, the parliament adopted a law which imposes greater responsibility upon bank owners and management for a financial institutions’ performance. The move is aimed at enhancing the banking sector’s resilience and ensures the protection of depositors’ and creditors’ rights. “The process of purging the banking system aiming to wind up insolvent banks and address the problems that have piled up in the banking industry over the years is still under way,” Gontareva said while commenting on the decision to declare Delta Bank insolvent.

Kiev-based Kreditprombank and Omega Bank that form part of the Delta Banking group have been categorized insolvent along with Delta Bank. They have been experiencing deteriorating financials after involvement in risky activities, according to the NBU’s statement. In January, both were declared problem banks. On Monday the NBU declared them insolvent as they continued violating National Bank regulations, with their owners failing to take appropriate measures to provide the necessary financial support.

In September NBU issued $165 million worth of credit to Delta Bank to support liquidity, and after agreeing a bank capitalization program issued a stabilization credit of about $39 million secured by notes guaranteed by the government.

However, those measures have only temporarily stabilized the bank’s situation. Considering the poor quality of Delta Bank’s assets, the “regulator was compelled to approve the decision to declare the bank insolvent,” NBU stated.

Delta Bank was founded in 2006; it was ranked fourth among the 158 operating banks as of January 1, 2015, with total assets worth $247 billion.

RT.


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