Ukraine Kelly Scoville PUAF 781 November 26, 2007 Key Facts Population: 46,299,862 Unemployment Rate: 2.7% (officially registered) Current Account Balance: -$1.617 billion GDP (PPP): $364.3 billion GDP real growth rate: 7.1% (2006 estimate) GDP composition by sector: • Agriculture: 10.2% • Industry: 32.9% • Services: 57% Annual Real GDP Growth (%) National Bank of Ukraine: Official Exchange Rate Digital code Letter code Number of units Currency Official exchange 036 AUD 100 Australian dollars 440.7440 031 AZM 100 Azerbaijanian manat 595.7296 974 BYR 10 Belarussian ruble 0.0235 124 CAD 100 Canadian dollar 511.6684 203 CZK 100 Czech korunas 27.9478 208 DKK 100 Danish kroner 100.3145 826 GBP 100 English pound sterling 1038.3263 233 EEK 100 Estonian kroons 47.7966 978 EUR 100 EURO 747.8545 348 HUF 1000 Hungarian forint 29.0643 352 ISK 100 Iceland kronas 8.0466 392 JPY 1000 Japanese yens 46.7789 398 KZT 100 Kazakh tenges 4.1954 428 LVL 100 Latvian lat 1070.3514 440 LTL 100 Lithuanian lit 216.5936 498 MDL 100 Moldavian lei 44.7818 578 NOK 100 Norwegian kroner 92.9185 985 PLN 100 Polish zlotys 202.5882 643 RUB 10 Russian ruble 2.0812 960 XDR 100 SDR 804.7693 702 SGD 100 Singaporean dollar 350.2175 703 SKK 100 Slovak korunas 22.2781 752 SEK 100 Swedish crowns 80.2522 756 CHF 100 Swiss franc 458.1880 792 TRL 100 Turkish lire 419.7892 795 TMM 10000 Turkmen manat 9.7115 840 USD 100 US dollar 505.0000 860 UZS 100 Uzbekistan sum 0.3933 156 CNY 100 Yuan renminbi (China) 68.1882 Political Issues Formerly part of the Soviet Union; independence ratified in December 1991 Liberalized most prices and erected legal framework for privatization Widespread resistance to reform at first Officially a democratic republic, though there have been problems: rigged 2004 presidential election Elusive domestic political stability Economy in the 1990s Ukraine moved from planned economy to market economy with collapse of Soviet system. Painful transition for many; led to widespread poverty. Negative GDP growth throughout the 90s. Government subsidized government-owned industries and agriculture. Loose monetary policy led to massive hyperinflation in early 90s. Prices stabilized after introduction of new currency, hyrvnia, in 1996. Current Economic Environment Emerging free market Imports most energy supplies, especially oil and natural gas, mostly from Russia; exports metals, machinery and transport equipment, food GDP growth positive, but economic growth slowed recently as world energy prices rose and metal prices fell. The hyrvnia is essentially pegged to the US dollar. Key Issues: The Good GDP growth has been positive in recent years Some reforms and laws have been enacted with the goal of joining the WTO Heightened foreign direct investment Continued growth of services Entry of small and medium enterprises in market Has made strides to diversify to new markets (Asia, EU) rather than depend on Russia Key Issues: The Bad Dependence on Russia for energy supplies makes economy vulnerable to external shocks (especially energy shocks) Lack of structural reform and privatization efforts (especially land) Corruption and political instability Poor corporate governance and weak enforcement of contracts WTO membership question Appreciation of hyrvnia Key Issues: The Bad De facto peg to US$ too difficult and costly to maintain Inflation is much more volatile and well above that of more advanced transition economies GDP growth is forecast to slow in 2008-2009 Current account deficit expected to widen Issue Analysis: Goods Market Current account deficit: export to import ratio declines and reduces expenditure Decline in investment further reduces expenditure Leads to serious decline in output Issue Analysis: Money/FOREX Market Governor of Central Bank considering allowing currency to appreciate further Could do so by contracting money supply Expectation of appreciation lowers interest parity condition and further appreciates currency Recommendations Quicken pace and scope of structural reforms and privatization efforts Make further strides to diversify to new markets Enact modern corporate governance legislation and create market-supporting institutions Allow hryvnia to float more freely Fight corruption Reduce dependence on steel exports Questions? References Krugman, Paul and Maurice Obstfeld. International Economics. Pearson: Boston, 2006. CIA-The World Factbook. Ukraine. https://www.cia.gov/library/publications/the- world-factbook/geos/up.html International Monetary Fund. Ukraine. http://www.imf.org/external/country/UKR/index.htm World Bank. Ukraine. http://www.worldbank.org/ National Bank of Ukraine. http://bank.gov.ua/Engl/default.htm National Bank of Ukraine official exhange rate. http://bank.gov.ua/kurs/engl/last_kurs1.htm Ukraine: Selected Issues. International Monetary Fund. http://www.imf.org/external/pubs/ft/scr/2007/cr0747.pdf Modern Economic Potential of Ukraine. National Exhibition of Ukraine in the USA. http://www.ukrdzi.com/usa/uapotential/21.htm The Economist. Country Briefings: Ukraine. http://www.economist.com/countries/Ukraine/ The Economist. “Oranges and Lemons.” 4 October 2007. The Economist. “Viktor v. Viktor: Ukraine’s Political Crisis.” 12 April 2007.