Transition to hryvnia reported to be proceeding smoothly (09/15/96)

Transition to hryvnia reported to be proceeding smoothly

by Roman Woronowycz
Kyiv Press Bureau

KYIV - Ukraine's Deputy Prime Minister for Economic Affairs Viktor Pynzenyk said on September 12 that monetary reform and the transition from the karbovanets to the hryvnia has gone smoothly thus far and has exceeded everyone's expectations.

If all continues to go well for the duration of the transition, Mr. Pynzenyk said he had confidence that the 1997 budget, which went to the Parliament the same day, is a realistic one that will lead to a long-awaited economic upswing.

The hryvnia, which was introduced on September 2 and for a two-week transition period was to be the currency of Ukraine alongside the old karbovanets, has quickly become the major vehicle of economic transactions. Mr Pynzenyk said that in the first five days of monetary reform, 60 percent of the supply of the karbovanets in circulation was changed out. By September 12, 74.1 percent (232 trillion kbv) of the old money had been replaced.

"Our prognosis as to how the transition would occur was more pessimistic," said Mr. Pynzenyk. "The people have proved us wrong, and we are pleased."

Many had feared that the hryvnia would prove as unstable as the karbovanets had been and that the public would opt to buy dollars, a scenario that could have left the hryvnia worthless in the international markets it is trying to crack. Trust in the new Ukrainian currency is higher than thought, it turns out. Almost two-thirds of all karbovantsi exchanged were for hryvni, explained Mr. Pynzenyk (about 150 trillion kbv). The hryvnia has remained steady against the dollar, trading at around 1.70 hryvni.

The deputy prime minister, who holds a Ph.D in economics, also expressed delight that deposits in savings banks have dramatically increased. Since monetary reform began 13 days ago, deposits in commercial banks have increased from 42 trillion kbv (42 million hrv) to 73 trillion kbv (73 million hrv). He said that 35 percent of all karbovanets to hryvnia transactions were done through in-bank transactions. Deposits of one year's duration or longer have risen by 30 percent.

Much of the newfound trust in savings accounts can be credited to a relatively low inflation rate in the last several months. In June and July inflation rose merely 0.1 percent each month, although in August it climbed by 5.7 percent. Mr. Pynzenyk predicted that the September rate also would hover at around 5.7 percent.

Now Ukraine's economic challenge is to keep the inflationary spiral in check and for the Parliament to approve a realistic budget.

Mr. Pynzenyk said the budget that just went to Parliament foresees inflation reaching no higher than 25 percent. The rate for 1996 was pegged at 48 percent. In 1995 inflation reached 182 percent.

The key to holding down inflation is to allow for no emission of money beyond that budgeted, a policy that Mr. Pynzenyk said the National Bank of Ukraine and the government will strictly maintain. With monetary reform and inflation under control, the deputy prime minister predicted that Ukraine's economy would expand for the first time in 1997, by 1.7 percent GDP over 1996.

The budget calls for a deficit of 4 percent (this year the goal was 6.2 percent and today it stands at 6 percent with three months left in the fiscal year), of which the International Monetary Fund is to subsidize slightly more than half.

A light, if only a dim one, seems to be shining at the other end of the tunnel of economic reform that President Leonid Kuchma began two years ago, and Mr. Pynzenyk was obviously delighted at how the latest stage in the transformation took place. "If I had to do this again, even 100 years from now, I would do it exactly the same way."