But, as usual, they are employing heavy-handed tactics rather than a sensible strategy.
New rules force exporters to convert half their hard currency earnings into hryvnias. Starting next week, conversion to hryvnias is also mandatory for wire transfers from abroad of more than Hr 150,000 ($18,000).
On Nov. 16, a pro-presidential Party of Regions member of parliament filed a law that intends to introduce a 15 percent tax on any cash conversions of foreign currency into hryvnias. It has since been shelved, but statements from the National Bank of Ukraine suggest it is only a question of time before this happens.
Like many of the currently considered or passed measures, the law’s purported goal is to reduce the shadow economy and prevent profiteering on the currency’s future devaluation.
Its likely effect is the opposite. In a country where for decades bending the rules was an essential survival skill, the publication of a new law is immediately followed by dozens of schemes to get around it. That’s why letting the free market work makes all the more sense.
For months, bankers, businessmen and financial analysts have been saying that it’s a matter of when and by how much – not if – the hyrvnia will devalue. There are plenty of reasons for it, and a lot of them lie beyond Ukraine’s control. Prices and demand for steel and chemicals, two major exports, have dropped this year, sending the current account deep into the red. Meanwhile, stubbornly defending the hyrvnia to a firm dollar peg has hit currency reserves hard.
Releasing the peg would make the economy healthier, making Ukrainian exports more competitive. But it’s disadvantageous for the government for many reasons. Besides being unpopular it would make the huge monthly bill for natural gas from Russia, paid in hard currency and rubles, more expensive.
It is understandable that the government wants to avoid a panic, which could lead the currency to fall further than needed and wreak havoc on the banking system. Perhaps the recent measures are meant to manage this slide. Or perhaps there is no plan and it’s all just stopgap measures. The problem is, nobody knows. Statements by the authorities are rarely more than populist propaganda meant for their political base. Meanwhile, the rest of the country is kept in the dark. And guessing is only making people more nervous.
