Ratings oscillating

Several days after President Viktor Yushchenko issued the decree on the dissolution of the Verkhovna Rada, the international rating agency Standard & Poor’s changed its rating of Ukraine from “stable” to “negative”. At the same time, S&P confirmed the existing sovereign ratings of Ukraine: a long-term credit rating of BB for liabilities in foreign and national currencies and a short-term B rating. Moreover, the rating agency has no plans of changing or improving Ukraine’s rating, because S&P analysts believe that new parliamentary elections will not lead to the formation of the market- and reform-oriented government, even if one of the opposition leaders Yulia Tymoshenko returns to power.

Investors take a “coffee break”

Clearly, structural reforms of Ukraine’s economy will be suspended for several months and the government regardless of its composition will return to them only after stabilization. Representatives of Ukrainian business note that starting from last year an old economic model saw a rebirth in the country.

The model envisages that only certain companies are admitted to such sensitive spheres as budget orders, VAT refunds and financial flows of state-owned corporations. This means that the government failed or did not wish to abandon manual management of the economy. Therefore, a peaceful political crisis capable of changing the situation could even do some good for business.

The threat of reduction of domestic capital investments is due to the fact that the largest Ukrainian financial-industrial groups will definitely reorient a part of their funds to support politicians, thus curtailing the investment programs of their enterprises.

“Most likely, we will see a differentiation of investments,” says Yaroslav Zhalil, President of the Center for Anti-Crisis Studies. As an example the expert gave the year 2005, when capital investments into the economy were record high, but were due to the sale of KryvorizhStal. In his opinion, this year, a similar scenario could be repeated after the sale of Ukrtelecom, for example.

“A period of up to six months, I believe, will be “dead season”, when all investors will take a break,” said Andriy Onystrat, Chairman of the Kyiv Oblast Branch of UkrSotsbank.

Currency exchange rate: moderate progress within the law

“For now, the economic situation in the country does not give grounds for currency rate fluctuations on the interbank exchange or cash markets. However, if exporters begin to hold back their currency gains and investors suspend investments into the country, the hryvnia rate could experience a slight decline. Everything will depend on how early elections are held – with force or within the framework of the law,” says Vladyslav Kravets, Chairman of the Board of NRB Bank.

In the opinion of Oleksandr Rybalkin, Chairman of Diamant Bank, the level of “dollarization” of the economy could somewhat increase. “When the political competition aggravates, people will start showing a preference for hard currency, gold and real estate, but it will not be a widespread phenomenon,” said the banker.

At the same time, Onystrat is convinced that the NBU will restrain negative trends and will not allow substantial fluctuations in the currency exchange rate. The national bank has enough reserves to do so. “From my point of view, the most probable scenario is one where the peak of the cash dollar exchange rate hit UAH 5.25-5.3/US $1 with further stabilization at USH 5.15-5.1/US $1,” said the banker.

Stock market will wait

On April 3, one hour and fifteen minutes into the trading session on the floor of the PFTS, Ukraine’s main stock exchange, the drop in share rates of the majority of blue chips reached 10-15% on average. In the opinion of Andriy Bohdanov, Director of the Analytical Department of the Troika Dialog investment company, the Ukrainian market is basically maintaining quite strong positions and has strong immunity to political risks. “However, if the political crisis aggravates, the decline may continue, especially since the market grew by more than 60% since the beginning of the year,” said the expert.

In the opinion of Ihor Mazepa, General Director of Concord Capital, the stock market will fully react to the current political crisis in a week or two. In their turn, analysts of UkrSibbank doubt that there will be a substantial withdrawal of funds of non-residents from Ukrainian securities. “A simultaneous withdrawal by non-residents will be accompanied by serious financial losses, which is why the majority of foreign investors will prefer to take increased political risks than register high losses,” say experts.

GDP: hands on the revolutionary lever

The representatives of the government say that the forecast for GDP growth of 6.5% - 7% for this year remains unchanged. The officials though say that this indicator could drop a slight bit in April. The strikes with which the government coalition is threatening the president could have a negative impact on industrial output in the country, though it will be negligible as lengthy strikes and demonstrations will cut into the financial resources of influential representatives of the coalition that own the industrial enterprises.

The source: Kyiv Weekly