News & Analysis
Forbidden to Mention Foreign Currency in Ukraine Now
Use of foreign currency in the advertising is forbidden in Ukraine ... Verkhovna Rada adopted amendments to Article 8 of the Law "On Advertising". According to new Law it is forbidden now to specify prices of goods and services in foreign currencies in any advertisement, which is placed or distributed in Ukraine. 266 deputies have voted for these changes to the Law. – It's Ukraine
Dominant Social Theme: Any nation has to protect its currency and should do so.
Free-Market Analysis: Ukraine is struggling with its economy and currency and, as we have seen with other countries, the solution is to pass laws that control money and prop it up.
Spain and Mexico have passed laws restricting cash. There are various forms of control on many currencies, though many are not stated outright. Here (see article excerpt above) we have an example of a fairly aggressive attempt at currency manipulation.
Not only is the government going to insist that price information be provided only in the national currency; those behind the law intend that such moves will reportedly provide a "legal basis for limiting the use of foreign currency in Ukraine," according to the article in It's Ukraine.
It is in a sense understandable. As the Financial Times reported recently, "Ukraine, with its economy sliding into recession and budget deficit widening, has appealed to the International Monetary Fund to initiate negotiations on a fresh, multibillion-dollar bailout loan programme." Later this month, an IMF delegation will begin discussions in Kiev.
According to the Financial Times article, the lending is necessary: "After contracting 15 per cent during the 2009 global recession, billions of dollars in IMF loans helped stabilise Ukraine's economy. But a $15bn bailout programme was frozen in 2011 amid lacklustre reform efforts."
Ukraine's gross domestic product moved down 1.3 per cent, in year-on-year terms and "weaker foreign demand, a domestic credit crunch and a lower grain harvest" are all going to make fourth-quarter earnings problematic.
The hryvnia, Ukraine's currency, moved down hard against the US dollar in November. And then there is this: "Separately, Ukraine's finance ministry this week revealed that the country's state budget gap widened almost threefold in the first 10 months of the year."
Budget gaps in the billions and reckless government spending have all contributed to the dismal state of the hryvnia, but we'd question whether government censorship of the mention in advertising of other currencies is really the answer.
Here's the harsh truth:
"Ukraine desperately needs fresh loans from the IMF to roll over about $10bn in external sovereign debt due next year, including $5.9bn owed to the IMF itself," said Alexander Valchyshen, head of research at Kiev-based Investment Capital Ukraine.
Signs that Kiev is keen to revive a loan programme with the IMF should "shore up confidence for the country's private sector market participants and to reduce the risk premium which is currently attached to local assets," Mr Valchyshen added.
Ukraine's default risk is the six highest of 93 countries tracked by Bloomberg.
Conclusion: These days the kind of currency manipulation on which Ukraine has embarked seems unsurprising. Increasingly, government monetary meddling is the expected, even approved methodology. That doesn't make it an effective one.
Posted by dave jr on 12/03/12 06:54 PM
"As the Financial Times reported recently, "Ukraine, with its economy sliding into recession and budget deficit widening, has appealed to the International Monetary Fund to initiate negotiations on a fresh, multibillion-dollar bailout loan programme.""
Don't let this slip by,"multibillion-dollar bailout". DOLLAR. How will dollars bail out the Ukraine? Or am I just groveling over rhetoric? So they want to insulate themselves. Can't blame them.
Posted by dimitri on 12/03/12 05:32 PM
When Stalin announced austerity it meant starvation unto death? Wonder what it will mean for the IMF?
Posted by Bob_M on 12/03/12 12:50 PM
It will be interesting to watch how the private market will circumvent this mandate - grams of gold or silver on the price tag - number of loaves of bread, gallons of gas, etc. The marketplace will usually be a step ahead of the mandate.