Monday, September 29, 2014

As Default and Devaluation Loom, Ukraine Bails Out Oligarchs and Hammers Everyone Else - Russia Insider

Today, the Ukrainian Central Bank announced changes to foreign exchange laws in a bid to help oligarchs while hurting the average Ukrainian.

The limit on company's foreign exchange holdings has been altered to allow 25% of revenues to be held in non-hryvina denominated currency from a prior 0%. At the same time the Central Bank cut the maximum an individual citizen of Ukraine is allowed to transact to 3,000 hryvina (around 230 dollars) from 15,000.

The move is all too reminiscent of Yeltsin's decision to default and devalue the Russian Ruble in August 1998. The previous 12 months had seen the Russian Central Bank paying out 27 billion dollars to defend the currency (around 6% of GDP at the time). What they were really doing was letting many of the well-connected convert their Ruble holdings ahead of the devaluation.

The Ukrainian Central Bank has so far lowered its foreign currency reserves from 20 billion to 15 billion in the past 9 months. This is on top of 1 billion dollars of IMF money and 1.5 billion of World Bank money which has been injected, implying that they have spent 7.5 billion propping up the currency, equivalent to about 8% of GDP. This is if we trust their excel spread-sheet from August, I would not be surprised if we discover five years later that the real amounts were much larger owing to theft.

Complete story at - As Default and Devaluation Loom, Ukraine Bails Out Oligarchs and Hammers Everyone Else - Russia Insider

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