EDITORIAL: A run for your money (09/01/96)

EDITORIAL

A run for your money

The introduction of Ukraine's new national currency the hryvnia - on September 2 may become a watershed event in this nation's economic history.

To be sure, Ukraine's government leaders took a gamble by announcing the debut of the hryvnia at this time. However, according to many insiders, it is a politically correct move.

"It's a logical move for the government to make, showing people - in the midst of Independence Day celebrations - that there is economic stability in Ukraine," said one Kyiv economist. "But, economically, such moves are made in the spring months when life is about to get easier and less expensive, not before the approaching cold winter, when energy prices are going to soar."

With such factors as a 0.1 percent inflation rate in June and July, the dollar-karbovanets exchange rate holding steady since last December, and an expected growth of 1.5 -2 percent in the gross national product, there has been some positive economic news in Ukraine, where the transformation to a market economy has moved at a snail's pace. Never before have economic conditions in independent Ukraine been more favorable to leave the transitional karbovanets behind and introduce a convertible, national currency.

Even the popular unease exhibited after rumors began circulating last week that the hryvnia would be introduced in the very near future has subsided over the last few days. The panic-buying of dollars has also tapered off, not only because citizens have calmed down, but also because the government has announced that it will revoke licenses of banks and businesses trying to make a profit on jittery residents.

Prime Minister Pavlo Lazarenko has tried to reassure Ukrainians that there is no reason to panic over the introduction of the new currency. He has reiterated on various occasions that the monetary reform will be fully transparent and that there will be neither restrictions on exchanges nor confiscation of currency, something many Ukrainians feared would transpire as it did in Russia in 1993, when only a certain amount of rubles could be traded for the new currency.

It seems that the government has earned the trust of its citizens, something that has not happened since independence was gained five years ago.

If economic reforms are to move forward in Ukraine, this trust is worth its weight in gold. It is the citizens of Ukraine who will determine whether or not these reforms take off in Ukraine.

Ben Slay, an analyst for the Open Media Research Institute, pointed out that if the Ukrainian currency began to slide, it could jeopardize the recent exchange rate and price stability that had originally created the favorable preconditions for the hryvnia's introduction.

But, he added that "the introduction of national currencies in post-Communist countries have often had the effect of creating powerful new symbols of national identity. These symbols in turn can help reformers sell their citizens on economic policies that maintain (or strengthen) the value of the new currency by keeping inflation low and encouraging exports and foreign investment.

"Ukraine has reached a critical point in its economic transition: continued progress requires socially painful restructuring of enterprises and financial institutions. The introduction of the hryvnia could help tilt the political balance in favor of reform, and help Ukraine through what will almost certainly be a difficult phase in its economic transition," he explained.

Now, if the government stands by its word and the transition period on September 2-16 goes smoothly, there is a good chance that economic reforms will take off in Ukraine. The hryvnia can appreciate in value and independent Ukraine will live long and prosper.