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29 September 1998
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President Kuchma Receives Co-Chairperson Of Ukrainian-German Interbank Group

On September 25, President Leonid Kuchma received Klaus Pieter Muller, Co-Chairman of the Ukrainian-German Interbank Group, member of the Kommerzbank's Board. Mr. Kuchma and Mr. Muller discussed situation on international foreign exchange markets, and effect of the world financial crisis on the Ukrainian economy. As Mr. Muller noted, situation in Ukraine is stable as compared to that in Russia. The German banker underscored the importance of fundamental steps taken by the Ukrainian executive branch, in particular, the adoption of a package of economic decrees signed by the president, and introduction of anti-crisis measures. Therefore, Ukraine has got a unique chance to positively distinguish itself among other states, former Soviet republics, said Mr. Muller. Leonid Kuchma noted that today's negative phenomena in the Ukrainian economy were connected, to a considerable extent, with impracticable state budget for 1998. The executive branch, in conjunction with parliament, will do their best to prevent similar situation next year, the President said. Leonid Kuchma stressed that Ukraine had always complied and would comply with its external financial obligations. The government has been given additional instructions to complete negotiations on servicing debts to holders of securities in the shortest possible time, he said.

Economics Ministry: Government Ready To Index Population's Income

The government is ready to index the population's income, since money for this purpose is provided for in the 1998 state budget, Deputy Economics Minister Viktor Kalnyk told Ukrainian News on September 23. "We are preparing for indexation. The indexation figure was embedded in the draft budget, and were expected to take effect at the end of the first half of 1998," Mr. Kalnyk said. According to him, the government is considering raising the minimum wage from HR 55 to 65 per month as compensation. "Of course, we would not want to implement both measures simultaneously," Mr. Kalnyk said. 100-200 million hryvnia are expected to be allocated for indexing the population's income. President Leonid Kuchma said at a press conference on the same day that indexation of the population's incomes would be effected "in line with the situation on the financial market." The Economics Ministry forecast an inflation figure of 7.3% for September.

NBU's Currency Reserves Rise To $ 1,034 Million

The National Bank of Ukraine's currency reserves have risen to $ 1.034 billion, Deputy Prime Minister Serhiy Tyhypko told a meeting of the Ukrainian Council of Regions on September 24. The NBU's reserves were less than $ 900 million as of early September. The NBU on September 7 discontinued massive interventions to support the hryvnia and instead began using administrative measures to limit demand for the dollar. The bank's reserves rose after it received $ 257 million, the first tranche of an IMF loan.

Hryvnia Rate Will Not Drop Below 3.5 Hryvnia/Dollar, Says NBU Chairman

The hryvnia's exchange rate will not drop below 3.5 hryvnia/dollar before the end of this year, NBU Chairman Viktor Yushchenko told journalists on September 22. "The hryvnia does not require to be devalued below 3.5 hryvnia/dollar," he said. On September 5, the Ukrainian government announced a new exchange rate corridor (trade band) of 2.5-3.5 hryvnia/dollar for 1998 to replace the previous 1.8-2.5 hryvnia/dollar. Mr. Yushchenko described the hryvnia devaluation as "smooth." According to him, demand and supply on the Ukrainian Interbank Currency Exchange assumed a "natural character" after the NBU mandated the sale on the UICE of part (50% from September 14) of enterprises' foreign currency proceeds. Mr. Yushchenko also stressed that the government-initiated conversion of nonresidents' bond holdings into bonds maturing in the year 2000 would neutralize one of the main devaluation pressures on the hryvnia.

Standard & Poor's Qualifies Ukraine's Bond Conversion As Default; Government Officials Disagree

The Standard & Poor's international credit rating agency issued a statement defining as default the recent rescheduling of Ukraine's domestic debts into longer-term bonds. The Standard & Poor's qualifies debt rescheduling terms as default if the terms are less favorable than the original terms, the statement said. According to Standard & Poor's, investors were forced to agree to the conversion because they practically had no choice. However, Ukrainian government officials have rejected the Standard and Poor's opinion. Valeriy Lytvytskiy, an adviser to President Leonid Kuchma on economic issues, told journalists that there were no grounds to define the bond conversion as default. According to him, the relevant agreements with investors were reviewed on a voluntary basis before they expired, adding that not a single investor could claim that he was refused repayment. Vyacheslav Kozak, an adviser to Deputy Prime Minister Serhiy Tyhypko, stressed that default is the fact of non-payment. Nothing of the sort occurred in Ukraine, he added. According to him, Ukraine is fulfilling its current obligations. The government began converting its domestic debts into longer-term bonds in late August. Ukrainian banks were asked to convert bonds maturing in 1998-99 into bonds maturing in 2001-2004; foreign investors were asked to covert their bonds into new bonds maturing in 2000. According to bankers, investors agreed to convert either under government pressure or for fear that lack of funds will force the Finance Ministry to default. However, investors have not protested officially against the government's action.

Cabinet Of Ministers Continuing Dialogue With Investors

The Cabinet of Ministers issued a statement on September 25 saying that the Cabinet and the National Bank of Ukraine are implementing several measures aimed at neutralizing the adverse effects of the current global financial crisis on the Ukrainian capital market. According to the Cabinetís statement, the domestic debt restructuring that took place in August-September was aimed at lightening the debt pressure on the state budget and the money market. The Finance Ministry on September 22 successfully and timely redeemed the first series of the 1997 medium-term domestic debts that were not converted into longer-term debts. The Cabinet of Ministers and the Finance Ministry would be willing to discuss all aspects of the debt conversion and redemption with investors.

Ukrainian Government Working Out Mechanism Of Barter Payment For Russian And Turkmen Natural Gas

A September 24 meeting held by Premier Valeriy Pustovoitenko with members of government charged with economic issues focused on a mechanism to be worked out for the payment for Russian and Turkmen energy supplies to Ukraine. As disclosed by Minister for Foreign Economic Relations and Trade Serhiy Osyka, the meeting discussed implementation of preliminary agreements reached with Russia and Turkmenistan on reimbursement of Ukraine's state debts for consumed natural gas in the form of goods and services rather than in the currency form. Mr. Osyka stressed that the agreements referred exclusively to the government's debts, not to those of commercial structures. We will pay to our commodities' producers and supply their products to those countries. It will allow us to save currency, and obtain working capital for domestic enterprises, said the minister. Finally, these steps are aimed at reviving Ukrainian economy, maintaining hryvnia and achieving financial stabilization in Ukraine, he added. Mr. Osyka informed on setting up working groups of representatives of relevant enterprises and associations, who will shortly go to Russia and Turkmenistan to negotiate the mechanism of gas payments. The government attaches a strategic importance to such a scheme of debt reimbursement, noted Mr. Osyka. It will help soften adverse effect of the Russian financial crisis on Ukrainian economy.

Economics Ministry Forecasts 7.5% Inflation For September

The Economics Ministry forecasts that the inflation figure for September will reach 7.5%, Economics Minister Vasyl Rogoviy said on September 22. The ministry's forecast is based on the assumption that the government-announced trade band of 2.5-3.5 hryvnia/dollar would hold. Mr. Rogoviy declined to forecast the inflation figure for 1998, saying that it would depend largely on the September inflation figure.

World Bank Drafting Program Of Aid To Social Sphere Of Ukraine

The World Bank is concerned about the growth of the number of the poor in Ukraine, said head of the WB department of economics and struggle against poverty Havez Ganem, who was speaking during an economic round table in Kiev on September 24. According to him, the World Bank is drafting a Program of Social Development aimed at improving the situation in the social sphere of Ukraine. Under the program, the WB is planning to extend a 200-million dollar loan to Ukraine. Deputy Minister for Labor and Social Policy of Ukraine Vasyl Rudenko disclosed that, in case of the programís successful introduction , the loan would be divided into two parts. The first one would be earmarked to Ukrainian regions for solving their social needs, while the second one would be used for developing entrepreneurship and creating new jobs.

United States To Announce Tender For Supply Of Nuclear Fuel To Ukrainian Power Stations

The United States intends to announce in mid-October a tender for supply of experimental consignments of nuclear fuel to Ukrainian nuclear power plants, Terry Lash, a representative of the US Energy Department, told the Infobank news agency on September 21. America's Westinghouse is one of the companies expected to be invited to participate. The winner is to be announced towards the end of 1998 while the experimental consignment is likely to be supplied in May 1999. Issues discussed during Lash's visit to Ukraine included the possibility of the US Energy Department's involvement in projects for increasing the capacity of Ukraine's VVER-1000 nuclear reactors, construction of a thermoelectric power plant near the Chornobyl NPP, and improving a future storage facility for spent nuclear fuel at the Zaporizhia NPP. Previously, representatives of the Ukrainian Energy Ministry and the Energoatom power company had expressed skepticism about the possibility of using Western nuclear fuel in VVER-1000 reactors because they considered such fuel to be unsuited to the Ukrainian reactors. Russia's TVEL Concern presently supplies nuclear fuel required by Ukrainian NPPs. Annually, they use nuclear fuel worth $ 350 million. In recent years, Ukraine, Russia, and Kazakhstan have been working on a project for creating a joint nuclear fuel cycle: the Dniprodzerzhinsk-based Tsirkonyi (established on the basis of the Nizhnedniprovsk chemical plant) and the Vostochnyi ore mining and enrichment plant represent Ukraine in the joint project. Ukraine currently lacks funds required to reconstruct these enterprises. Senior officials of the Energy Ministry did not rule out the possibility of establishing alternative production of nuclear fuel jointly with Western companies.


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