Ukraine Liberalizes Currency Market

KIEV, Ukraine -- Ukraine's central bank will let the official exchange rate for its currency move closer to the market's exchange rate, fulfilling a key condition to receive an International Monetary Fund loan, officials said Friday.

Ukraine's Hryvnia
Serhiy Kruglyk, head of the foreign relations department at the central bank, told The Associated Press that the bank will next month begin to set the daily exchange rate based on the average rate at the foreign currency exchange recorded during the previous day of trading.

Currently, the central bank exchange rates differ significantly from market rates. The official rate is set based on the market rate and other economic factors. The central bank does not publicize the exact formula.

The central bank rate was 5.15 hryvnia to the dollar Friday, while the hryvnia traded much lower on currency markets, at over 6.0 hryvnia to the dollar, reaching a new all-time low since its 1996 introduction.

Experts hailed the move, saying the central bank was taking a further step toward liberalizing the currency market, after it earlier abandoned the practice of keeping the national currency within a tight corridor to the dollar. However, the planned measure still did not amount to a full free float of the hryvnia, as the central bank would continue to intervene on the market.

"This is movement in the right direction, the direction of market reforms," said Oleksandr Klymchuk, an analyst with Concorde Capital Investment bank.

The hryvnia has lost over 20 percent in the financial crisis that has hit Ukraine hard. The currency fell to its historic low Thursday, trading at 6.01 per US$1 on the foreign currency exchange. The fall was due to a shortage of foreign currency because of a 40 percent fall in exports and a run on banks that stripped the banking sector of US$3.4 billion this month.

The IMF loan of up to US$14 billion is expected to help stabilize the financial sector, but the deepening political crisis threatened to block the deal.

Allies of Prime Minister Yulia Tymoshenko broke parliament's electronic voting system Friday as they protested against President Viktor Yushchenko's order to hold early elections.

Parliament spokesman Andriy Zhigulin said that members of Tymoshenko's faction clogged lawmakers' voting machines with coins, paper clips and pieces of tinfoil.

The heroes of the 2004 Orange Revolution, Yushchenko and Tymoshenko have turned into fierce rivals ahead of the 2010 presidential election. Yushchenko ordered a new parliamentary vote in December, but Tymoshenko is fighting to avoid the vote and retain her job.

Source: International Herald Tribune