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Do Ukrainian authorities need another round of hryvnia devaluation?

Author : Olexandr Honcharov

The second week in a row, hryvnia is declining towards the euro and the US dollar
23:26, 21 June 2018

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The second week in a row, hryvnia is declining towards the euro and the US dollar. So, if June 12 this year, National Bank set the official hryvnia exchange rate 26.09 UAH / USD., Then on June 19, the National Bank lowered the rate to the level of 26.32 UAH. And by the evening of June 19, the quotes of the hryvnia against the US dollar at the close of the interbank market were set at UAH 26.43-26.46 per one USD. Such a sudden jump. This new process of devaluation is again forced and objective?

It is high time for Prime Minister Groysman to tell the truth that there is very few money left in our state bins. In particular, we have lost customs revenues to the budget. Therefore, at the very beginning of this week on Monday, June 18, Groysman has quickly assembled the law enforcers to discuss a plan developed by the government on combating smuggling and shadow schemes at customs. In addition, we still have huge social spending, which is expressed not in percentage, but in specific millions of hryvnia. Well, nature seems to be against us now. After all, because of the drought, this year is expected a poor harvest of grain in Kherson, Mykolaiv, and Zaporizhia regions (volumes of grain are half the figure for 2017- 12-15 tons per hectare). And therefore, inevitably we would face higher prices of bread and flour.

Related: National Bank introduces 5 and 10 hryvnias coins with An planes

State management of finance and the economy is not that simple. Ukraine still has bright and versatile "talents". Judge for yourself. Everyone who these days uses the Internet, encounter aggressive advertising of one of the well-known group of investment and financial institutions, offering Ukrainians yield on investment of their cash savings at the level of the annual 24% in local currency and 18% in the US dollar! And why do we need the IMF, PM Groysman, and Minister of Finance Smoliy, if we have already got such gifted Ukrainian young financiers ?!

June 19, I have appointed a meeting he met with them. I confess, these educated young people in elegant and expensive suits confidently held the negotiating. Frankly speaking, they have no problems with trusting financially wealthy Ukrainians. If one client brings at least 10 000 dollars, and for a week, at least minimum of 100 clients come, respectively, in a month it is cash inflow will amount to 5 million dollars.

Related: Exchange rate for the hryvnia becomes more optimistic

Moreover, contracts are concluded exclusively between individuals, that is, natural persons - owners of money and the individual, the head of the company. Perfect circumstances for the impossibility of future appeal to the court! Yes, the financial market of Ukraine has the shortest memory. Cash trusts dashing 90s and open diversified investment funds of fatty 2000’s are just nothing in front of this "pristine" and naively simple transparent financial scheme. Groysman can transfer hryvnia balances from the state budget-2018 to these guys and receive monthly interest income at the rate of 36% per annum for the hryvnia to pay the pensions and salaries of state employees.

But if we talk seriously and without sarcasm, we have to live in debt, and international creditors "do not have" conscience - first of all, they demand reforms, and then they will give us a credit money. There is a good saying among businessmen: they say, everyone complains about the lack of money, no one complains about the lack of intelligence. Even at the end of this summer, the situation will not calm down, hryvnia will continue to go down. Therefore, top officials and people's deputies need to start discussing how to continue living in the Ukrainian market with a lack of money, how to adapt to the volatility and weakening of the national currency. 

Related: Big Mac Index reveals Ukraine’s hryvnia undervalued by 69%

Finally, the main question: what in this situation will the government do?

First, the power will print even more money. Second, it would take external loans, but so far corrupt officials do not fulfill the requirements of the creditors. Third: depreciation of the hryvnia, that is, its devaluation. Yes, almost everyone becomes poor because of the devaluation. But are there other possibilities for Groysman to prevent this destructive process? Of course, the prime minister has a good option: a significant reduction in government spending. But who will go for this on the eve of the presidential contests and elections to the Verkhovna Rada?

Related: Why Ukrainian hryvnia falls: Secrets of the real exchange rate policy

Still, if the Cabinet of Ministers and legislators could professionally look at structural financial and economic problems, which they have created themselves, we would understand that a weak volatile hryvnia and a lack of investment in the economy are key to correction today. And in order to attract direct investment in Ukraine, you need a stable hryvnia and low inflation. But neither of them can be achieved by Groysman. Why? Because we still do not have any of the main reasons for this big crisis. All monetary policy and economic model should change, and nobody wants to do it. It turns out that the crisis is not that difficult; the main trouble is a way out of the crisis. As for June 20, National Bank of Ukraine has set the rate of the US dollar at the level of 26.44 UAH! Let me remind you, on June 12, that is 8 days ago, it was still 26.09 UAH.

This column does not necessarily reflect the opinion of the editorial board or 112.International and its owners.

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