Yet another country has gone the route of capital controls hoping to stave off an outflow of currency. Bloomberg reports Ukraine Imposes Capital Controls as President Meets Putin.
Ukraine’s central bank imposed limits on foreign-currency purchases after its interventions failed to alleviate pressure on the hryvnia, while President Viktor Yanukovych left to meet his Russian counterpart, Vladimir Putin.
The monetary authority’s measures include a waiting period of at least six working days for foreign-currency purchases by companies and curbs on individuals’ market access, according to a statement on its website late yesterday. It also moved the hryvnia’s official exchange rate, used for accounting purposes, to 8.7 per dollar from 7.99, the first change since 2012.
Ukraine’s political crisis, in its third month, is rocking the country’s currency as reserves are stretched too thin to finance a record current-account deficit. As the U.S. and the European Union discuss potential aid, Yanukovych traveled to the opening ceremony of the Sochi Olympics. He will meet the Russian president, who halted payments from a $15 billion bailout after the unrest led to the cabinet’s collapse.
Risk of Default
“The political stalemate, exacerbated by a suspension of the Russian financial aid package, increases the risk of a sovereign default later this year,” Tatiana Orlova, an economist at Royal Bank of Scotland Group Plc in London wrote in a report yesterday.
The IMF in 2010 agreed to lend $15.6 billion to Ukraine, only to freeze disbursements the following year after the government refused to raise domestic natural-gas prices to trim the budget deficit.
Foreign reserves probably shrank to $18.7 billion in January, the lowest since 2006, from $20.4 billion a month earlier, according to the median estimate of eight analysts polled by Bloomberg before the central bank publishes the data tomorrow. Reserves fell to $17.8 billion as of yesterday, the Interfax news service reported today, citing a person it didn’t identify.
Add Ukraine to the list of countries alleged to have been helped by the parasitic practices of the IMF. Greece and Spain are both suffering because of bailouts designed to help bank creditors, not taxpayers in countries under financial stress.
Mike “Mish” Shedlock