Natalie Ann Jaresko, Ukraine’s Minister of Finance. Photographer: Guy Martin/Bloomberg

The VoxUkraine Brief: War For The Hryvnia

#VoxUkraine weekly selection of best articles on Ukraine.

by Yuriy Gorodnichenko and Vladymyr Bylotkach, VoxUkraine Editorial Board

produced by Kseniya Alekankina

Bloomberg’s cover story is about Natalie Jaresko, Ukraine’s Minister of Finance. This article signals unprecedented attention to Ukraine as well as underscores that the current government in Ukraine is radically different what anything Ukraine had since its independence in 1991.

…they must rebuild a shattered economy and restore international confidence in Ukraine while confronting the corruption and cronyism that have haunted the country since the fall of communism. And they must somehow do so as state-owned banks teeter on the brink of collapse, the national treasury counts its last foreign notes, and inflation is at 28 percent and rising. …“I can’t wait for the situation to be perfect,” Jaresko says.

Joschka Fischer, German Foreign Minister and Vice Chancellor from 1998–2005, calls Chancellor Angela Merkel to re-assess Germany’s role in current European affairs and play a more proactive role in resolving the crisis in Ukraine (and in Greece). He argues that Merkel’s thinking shifted from a policy of “small steps” — mainly aimed to ensure economy prosperity in Germany — to a policy of taking strategic threats head on.

Yuriy Gorodnichenko reviews options that were available the National Bank of Ukraine (NBU). Given the conflicting constraints and objectives — diffuse panic, protect banking system, keep inflation low, support the government — there is no simple solution. Fortunately, the NBU decided to tighten capital controls, which is likely to be the best policy under the circumstances.

The National Bank of Ukraine (NBU) tightened capital controls on February 23, 2015. The central bank introduced these additional administrative measures in response to violent fluctuations in the value of hryvnia. The NBU claimed that there is no fundamental reason to have an exchange rate of 30 hryvnias per U.S. dollar.

The Guardian notes comments by Victoria Nuland, assistant secretary of state for European and Eurasian affairs, who called Russian aggressive action in Ukraine what it is — an invasion. It appears that Western officials have avoided using this term publicly up to now.

Nuland … replied that “we have made clear that Russia is responsible for fielding this war”.

CNN draws attention to the dire consequences of Russian aggression in the affected regions of Donetsk and Luhansk regions.

Bloomberg’s article on Friday evaluates the state of Ukraine’s economy, and suggests that “Ukraine has wasted time, and now not even the IMF may be able to help.

Ukraine’s international reserves at the end of February were down to $5.6 billion, the lowest level since June 2003. There’s also the fact that the National Bank of Ukraine spends about $1 billion per month despite all the present restrictions, half on debt servicing and half on interventions to prop up the hryvna’s official rate.

Index for Monitoring Reforms (IMoRe). Release 4

The IMoRe value for the fourth monitoring period (February 9th –22nd 2015) stood at +0.3 points out of the possible range from -5.0 to +5.0 points.

Also, this week on #VoxUkraine

16 January President Poroshenko submitted a draft law to Parliament aimed at denouncing the constitutional guarantee of parliamentary immunity, except for non-liability for statements made in Parliament and for voting. On 5 February the Verhovna Rada approved the draft law in the first reading and submitted it to Constitutional Court for review.

A recent blog, which was republished by several Ukrainian outlets, suggests Ukraine now faces hyperinflation, estimating the annual inflation rate is 272% and the implied monthly inflation rate is 64.5%. VoxUkraine believes that the method used by the author of the blog to estimate inflation is inappropriate and misleading when applied to Ukraine.

In this post we discuss how dual-track idea can be used to address the inefficient energy sector, a key problem for the future of Ukraine. Households will sort into plans based on their current consumption of gas. Some household may end up paying the price they face now, thus reducing the opposition to bringing gas prices to the market level.

Head of the Antimonopoly Authority in the Emerging Market Economy: Is Mission(Im)Possible?

Have a great weekend!

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