UKRAINIAN ECONOMIC AND FINANCIAL DEVELOPMENTS
FOR THE WEEK ENDING JANUARY 7.
15 JANUARY 2000
SOURCE: US EMBASSY KIEV
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SUMMARY
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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.
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1999 INFLATION TOTALED 19 PERCENT; DECEMBER 4 PERCENT
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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.
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MOODY'S REDUCES UKRAINE'S LONG-TERM CREDIT RATING
ON SOVEREIGN FOREIGN CURRENCY DEBT
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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 A STABLE
OUTLOOK" BASED ON THE SUCCESSFUL RESTRUCTURING OF MUCH
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.
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SPF FALLS SHORT OF PRIVATIZATION REVENUE TARGETS
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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.
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1999 BUDGET DEFICIT EXCEEDED LEVEL ALLOWED BY LAW
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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.
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UKRAINE'S BANKS FACED NO Y2K-RELATED PROBLEMS
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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.
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INTERNATIONAL AUDIT REQUIRED FOR TEN LARGEST BANKS
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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.
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EXCHANGE RATES
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8. HRYVNIA/DOLLAR EXCHANGE RATES WERE AS FOLLOWS:
01/03 01/04 01/05 01/06 01/07
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OFFICIAL RATE 5.2163 5.2163 5.2163 5.2189 5.2194
KIEV CASH RATE HOLIDAY5.5290 5.5320 5.5320 HOLIDAY