Economic forecasts gloomy all around

The prospects for Ukraine’s economy are looking dicier amid a ballooning global financial crisis and dire predictions about a looming worldwide recession. In the short run, the nation may find itself in a serious cash squeeze.

On Oct. 15, Economics Minister Bohdan Danylyshyn announced that an International Monetary Fund delegation was visiting Kyiv. The government is expected to seek an emergency stabilization loan. Under a 2004 agreement, Ukraine is entitled to draw up to $605 million in standby credits if needed, Reuters news service reported.

Danylyshyn insisted there is no reason for panic. “Altogether, Ukraine’s macroeconomic situation is not dangerous, as many experts have insisted,” Danylyshyn said. However, leading credit agencies have downgraded the credit-worthiness of the country itself and many of its banks.

Other nations may be seeking the IMF’s help in the wake of the global credit crunch. Hungary, Serbia and Iceland are likely to tap into emergency credits, according to Reuters. “We have about six or seven countries in the pipeline,” a senior IMF official told the news service. “I wouldn’t be surprised if there were about a dozen countries after a few months.”

Governments worldwide have pumped more cash into money markets to restart interbank lending. The United States, for instance, outlined a plan to invest $250 billion in its banks. But there were still doubts whether it would revive confidence and avert a global recession.

The visiting IMF delegation to Kyiv arrived in a nation where the political leadership seems more engaged in feuds than in preparing the nation for the economic blows ahead. The debate is dominated by Prime Minister Yulia Tymoshenko’s refusal to allocate $85 million for a Dec. 7 pre-term parliamentary election called by President Victor Yushchenko following the collapse of the ruling coalition.

So far, with Ukrainian politicians at loggerheads, the only state institution that has responded with concrete measures is the National Bank of Ukraine.

On Oct. 13, the central bank froze the early withdrawal of term savings accounts in an attempt to thwart what it viewed as a doomsday scenario – a panic-driven run on deposits that would threaten the solvency of the nation’s banking sector. This drastic move, which last came during the chaos of the 2004 democratic Orange Revolution, happened after the central bank injected more than $1 billion into the ailing banking sector. That move bailed out more than 20 banks. Some analysts praised the swift moves, saying they would prevent chaos in the country’s financial system.

But a leading industrialist, Oleksandr Pylypenko, told Kommersant newspaper that the coming economic slowdown poses deeper challenges.

“This crisis is systemic … and concerns everyone … and is similar to what happened in the United States in 1929,” said Pilipenko, vice president of Industrial Union of Donbas, a Donetsk-based group that operates steel mills in Hungary and Poland besides Ukraine. “I think every third person in Ukraine could become jobless soon.”

Hundreds of thousands of blue-collar workers in the steel industry, which provides the nation’s top export, appear to be at greatest risk of joblessness. Reportedly half of the 35 blast furnaces in Ukraine’s metallurgical sector have been shut down because of slumping demand and prices. Ukraine's biggest steel mill, ArcelorMittal, is working at half capacity. The nation is the world's eighth-largest steel maker.

All signs – including a stock market that has lost 70 percent of its value this year – are pointing to an end to nearly 10 years of robust economic growth. The growth made Ukraine’s handful of mega-billionaires even richer and, helped by easy credit from Western banks, ignited a consumer spending binge that appears to be coming to an end.

“If the downward tendency persists in October, then industry [will be] technically in recession,” Valeriy Lytvytsky, a top economic adviser at Ukraine’s central bank, told journalists.

The anxiety about heavy industry has spread to the country’s agriculture sector and retailers. Farmers, grain traders and the food industry are worried that the credit crunch could prevent a repeat of this year’s record harvest of 47 million tons of grain.

“The crisis will affect the agricultural sector of Ukraine much more than in many other countries,” said Andriy Yarmak, an agriculture consultant, who added that farmers are having trouble storing their immense surplus and selling it at high-enough prices.

“They can’t get enough cash for new crop planting,” Yarmak said. “In the past few weeks, it has been nearly impossible to get loans from Ukrainian banks, which are needed for everything from planting and machine maintenance to  grain processing and exports.”

If the credit squeeze persists, Yarmak said, agricultural production could decrease next year and lead to higher food prices.

Meanwhile, domestic currency has plummeted. The hryvnia hit an all-time low on Oct. 8 of Hr 5.9 to the dollar, before gaining strength in the last week. Its weakness is bound to dent retailers.

Especially hard hit will be those who sell imports, such as electronics stores, if the hryvnia keeps sliding.

A handful of restaurants in Kyiv said they have not detected a downturn in business and had no plans to cut prices. Yet a leading wholesale-retail operator in Ukraine, Germany’s Metro Cash & Carry, announced on Oct. 13 that it would cut prices for a selection of its goods by 10 percent to stay competitive.

By “reducing the price on more than 1,000 goods which our customers need for their daily business, we want to help them to maintain their operations, which are under pressure due to the instability of financial markets and an accelerated declining trend of consumer confidence,” said Axel Hluchy, managing director of Metro Cash & Carry Ukraine.

The company has a leading position on Ukraine’s wholesale business and has plans to expand aggressively into the retail segment. In five years, this European giant has opened 20 wholesale stores across the country. It currently employs 7,000 Ukrainians.

Unitrade, a leading consumer electronic retailer, is expecting slower demand for its products because customers are having trouble borrowing money. Fozzy Group, which owns the Silpo supermarket chain among numerous others, also announced price cuts.

Moderation of Ukraine's high inflation may be the only silver lining in the dark economic clouds. Revised annual inflation forecasts range from 14 percent to the  mid-20s.

Some weren't taking any chances and pulled money from banks on Oct. 15. As citizen Lyudmila Kudnikov told the Associated Press: "There is one crisis after another."