Feedback

What will happen to economy of Ukraine after martial law introduction?

Author : Yuriy Hryhorenko

Everyone knows that “money likes the sound of silence,” and the introduced martial law is not associated with “silence” and “peace”
09:30, 28 November 2018

Open source


Martial law was declared in Ukraine for the first time in its history. Although theoretically everything was clear from the articles of the law that regulates all procedures, in fact, very few people understood how this would be implemented in practice. Initially, the very fact of a possible declaration of the martial law was perceived rather emotionally, but later the possible consequences were discussed more and more. This law shouldn’t ruin the minimum and fragile economic growth and the economy as a whole.

All the complexity and unpredictability of the situation was already evident from the first reaction of the financial market. Despite the traditional National Bank statement for crisis situations, (they say, the banking system is not in danger), the hryvnia / dollar rate fell immediately on Monday (it decreased by 15 kopecks - to 27.895 UAH / USD at the interbank market, and the reference rate fell by 9 kopecks - to 27.8942 UAH / USD). The global financial markets responded by increasing the yield of government securities and falling stock prices of Ukrainian issuers. This, of course, is not panic, but the markets were obviously tense in the face of the incomprehensibility of the outcome of the voting.

As a result, the announcement of the martial law in a reduced format (by date, by territory, by restrictions) will be less painfully perceived by the economy, but there will be no reaction without consequences and the seeds of doubt are already sown in the heads of businessmen and in business calculations.

Related: Turkish Stream is another Russian blow to Ukraine

What do experts say about the influence of the martial law on the Ukrainian economy?

Olexiy Doroshenko, Director of the Ukrainian Association of Retail Networks Suppliers

Stock exchanges and indices often reflect expectations, i.e. react before a certain event. We had the same thing, and on Monday in some exchange points, the rate reached UAH 29 / 1 USD and higher. If the course does not roll back, then the suppliers will set the rate of 30-30.5 UAH / 1 USD into their calculations. In a negative scenario, it threatens to increase prices by 6-8% and, possibly, a reduction in supply. This will affect, above all, essential goods, i.e. socially vulnerable people will suffer the most. Worst of all, if due to the lack of currency, Ukrainian companies will not be able to pay for their foreign economic contracts.

Artem Kovbel, Kreston GCG partner

The introduction of martial law — even the threat of its introduction — always stimulates panic among the population, among the business. This panic with chain reaction causes several factors at once.

First of all, the growth of the dollar exchange rate. Our unreliable banking system has taught people in any, even a minor crisis, to immediately withdraw all the money from the accounts, convert everything into a dollar. This accelerates the devaluation of the hryvnia. If last week we had every chance to meet the New Year with a dollar at 28, now the situation is not the same. The dollar began to increase its rate yesterday, it definitely will not be limited.

The growth of the dollar also provokes a rise in prices in the country, primarily for the most key goods - cereals, bread, medicines.

Shares of Ukrainian companies yesterday decreased in price (by 1-2% on average) only on rumors about the introduction of martial law. And they will fall further. Investors are likely to massively withdraw money from Ukraine, which will additionally hit the hryvnia exchange rate. And, of course, the investment attractiveness of Ukraine will also suffer greatly. No one will invest in a country under martial law – it’s too dangerous. Ukrainian Eurobond has already plummeted in value. On Monday morning, the price of Eurobonds Ukraine-32 decreased by 1.295% to 80.043% of the nominal, Ukraine-24 - by 1.177%, to 90.158% of the nominal, Ukraine-25 - by 1.158%, to 88.427% of the nominal.

The companies of Vinnytsia, Odesa and other areas where martial law is in force may face certain difficulties. The fact is that in conditions of martial law, the president receives almost unlimited power and will be able to close the borders at will or cancel the constitutional rights of the population. Poroshenko promised not to do this, but if he still decides (for example, to devalue the ruble of his political opponents before the elections), failures in the work of various companies are guaranteed.

Related: Is there any point in declaring martial law in Ukraine?


Finally, cooperation with the IMF is in question. Representatives of the latter did not directly say that the loan would not be granted to Ukraine. But they did not claim the opposite. Most likely, the IMF will take a wait. Minimum - until the end of martial law, maximum - before the presidential-parliamentary elections. And only after that decisions about when and how much money would they give to Ukraine will be made.

Artem Afyan, lawyer, Juscutum JSC managing partner

The introduction of martial law in certain regions of Ukraine can be used by many counterparties as a situation of force majeure. This means that non-payment of rent, the failure of the deliveries that were planned, and other defaults can occur with reference to force majeure, as on a weighty basis. Everything that used to be a violation can be attributed to forcing majeure with the martial law. In such conditions, there is a rather high risk of unbalancing the economic life of the country. It is difficult to predict the consequences, for example, some enterprises will no longer fulfill their obligations, it will be difficult to force them to do this through the courts due to force majeure. In general, this creates serious difficulties for the country's economy.

Martial law is a very alarming signal for foreign investors. This is a significant impetus to the outflow of capital and skilled labor from Ukraine. The banks of the country may be also under the influence of martial law. However, in Ukraine, there is a fairly rigid currency regulation, so for the time being no specific actions in the banking system are expected.

Viktor Shulyk, IBI-Rating Market Research Department Director

On November 26, panic sentiments were observed in the currency and stock market due to the uncertainty as which part of the norms of Law No. 389-VIII will be applied. Approval of the document in the current edition is a compromise - the most "soft" form, which differs from the original version, is published on the official website of the president. The authorities did not promise a significant limitation of business activity due to this fact.

Related: I ordered phone conversation with Putin, no reply, - Poroshenko


At the same time, the martial law regime (even without escalation of the conflict) can:

- increase the number of violations of the fulfillment of financial and contractual (commercial) obligations on the part of economic entities registered in regions in which martial law is imposed;

- lead to the redistribution of budget funds in favor of individual sectors of the economy (in manual mode);

- make a negative impact on investment attractiveness.

Despite the fact that the provisions of the Law "On the Legal Status of the Martial Law Regime" will be applied sparingly, the very fact of their application, as well as the possible escalation of a military conflict may lead to a further decrease in interest in Ukraine from portfolio and strategic investors. In such circumstances, the question of finding an investor for the Ukrainian "gas pipe" and a number of strategic enterprises may be postponed indefinitely.

Related: Ukrainians could teach Europe real European values

Related: Incident in Azov Sea became 'extraordinary event' in 4.5 years of Russian aggression, - Poroshenko

Topics:
Система Orphus

If you find an error, highlight the desired text and press Ctrl + Enter, to tell about it

Comments
see more