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Ukraine introduced a new currency in September 1996 five years after gaining independence from the former Soviet Union in 1991. Ukraine has experienced economic decline during the 1990’s since the breakup of the Soviet Union resulting in a lower standard of living with its painful restructuring of the Ukrainian economy.

POLITICS: divided politically with Eastern Ukraine (Russian language) supporting closer economic & political ties to Russia while Western Ukraine (Ukrainian language) wishes for closer alignment with the West. In the Ukrainian political structure, the Presidency holds far too much power. President Yanukovych is in power since February 2010 with a mandate to revitalize the economy by increasing growth, improve the general business climate and to increase foreign direct investment.

ECONOMY: Ukraine experienced a hyperinflationary depression in the mid 1990’s resulting in 1999 economic output only at 40 percent of its 1991 level. As GDP collapsed in the early 1990’s due to the disintegration of the former Soviet Union, inflation in Ukraine by 1993 reached hyperinflation levels of 10,000 percent and fell to 377 percent by 1995.

The Ukrainian economy tanked during the global financial crisis in 2008, it then experienced a significant rebound from 2010-2011, but by start of 2012 began to slow. At Present, Ukraine’s economy is highly dependent on Russia as it is its largest export market, trade partner and Russia is also a major supplier of energy to the Ukraine. The country is rich in natural resources with vast fertile agricultural farm land mixed in with heavy diversified industry. Ukraine can make its mark as an agricultural powerhouse with the ability to dramatically increase grain production for the world market. Ukraine became a member of the WTO in 2008. In March 2012, S&P downgraded Ukraine to negative.

Economic Statistics
GDP as measured using purchasing power parity is $334 billion USD (2011) with corresponding GDP/capita at $7,300 USD (2011). If measuring by market prices, GDP came in at 165 billion USD (2011) or approximately $40 billion USD. GDP growth numbers include year 2012 estimated at 3 percent, year 2013 projected at 3.5 percent. Inflation quotes include year 2012 estimated at 4.5 percent, year 2013 at 6.7 percent forecasted (rising), years 2011 at 8 percent, year 1999 at 25 percent. Current account is in deficit at 6.5 percent estimated for 2012. Fiscal deficit fell to 3.1 percent of GDP for 2011. Government debt is at 39 percent of GDP. Domestic energy needs are sufficient as follows with nuclear at 45 percent, coal at 50 percent and hydropower at 5 percent. Official unemployment at 7 percent, 35 percent live below the poverty line. Exports: Russia, Turkey –chemicals, machinery, agricultural, machinery. Imports: Russia, Germany – energy, machinery.

POSITIVES: large military with advanced hardware & nuclear defense strike capability, fairly large merchant marine, well-educated nation. CONCERN: nuclear waste, tax evasion, net energy importer, AIDS/HIV & tuberculosis ‘TB’ is a serious threat, male life expectancy at 63 years.

BANKING SYSTEM: well capitalized although high non-performing loans are a concern. During the hyperinflation in the 1990’s, barter became popular as a vehicle to facilitate transactions. Since year 2000, economic growth has returned along with reforms being implemented, the banking system is advancing with a formal monetary exchange now in place thus reducing the demand for barter. The National Bank of Ukraine is the country’s central bank holding gross foreign reserves at $24.4 billion USD (2012) equivalent to 2.6 months imports. For comparison during the Russian financial crisis in 1998, Ukraine held only $750 million USD in reserves. The commercial bank prime lending rate is 15.95 percent.

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ISO symbol ‘UAH’, Ukrainian hryvnia. At time of review on September 26, 2012, the hryvnia had an exchange value of 8.1475 UAH to 1 US dollar (USD) and/or 10.475 UAH to the Euroland Euro (EUR). Currency regime is a managed float whereby the authorities have successfully kept the exchange value close to 8 UAH to 1 USD for the last four years (unofficial peg).

CURRENCY HISTORY: the hryvnia was introduced in 1996 after the worst of the hyperinflation took place and as the Russian ruble was no longer used as currency for Ukraine. Historical valuations for the hryvnia include July 1997 at 1.856 UAH to 1 USD, January 1998 at 1.91, August 1998 at 2.24, September 1998 at 3.18, April 1999 at 4.05, November 1999 at 5.30, February 2000 at 5.61, January 2001 at 5.43, January 2002 at 5.33, December 2002 at 5.52, February 16, 2003 at 5.33, year 2007 at 5.05, year 2008 at 4.952, year 2009 at 7.79, year 2010 at 7.935, year 2011 at 7.967.

CURRENCY FORECAST: default risk has declined in our opinion since it recently peaked in 2010. The hryvnia is significantly undervalued particularly when measured by purchasing power parity upwards of 50 to 60 percent versus the USD, although this has been the situation for years. However, the greatest short to medium term threat to the hryvnia is political instability, higher inflation risk due to price increases in electricity & gas. Likely medium currency valuation for the hryvnia is at 9 UAH to 1 USD. believes that Ukraine with great economic potential will prosper in the long term particularly as Ukraine has considerable manufacturing idle capacity to be exploited. Reform is required in taxes, bankruptcy legislation, ownership of property rights, investor protection, etc. Ukraine is rich in agricultural lands and mineral resources coupled along with a capable heavy industry infrastructure in place will realize a much higher standard of living if the country can achieve sound stable leadership. Stability index subjectively gives Ukraine a modest to fair risk for the Ukrainian hryvnia.
UPDATED: September 26, 2012

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