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    Ukraine may seek IMF standby support

    15.10.2008 - 14:47 | Son Güncelleme:

    Ukraine may seek support from the International Monetary Fund through a standby credit programme approved in 2004, a central bank official said on Wednesday as the global financial crisis tightened pressures on its economy.

    Emerging market countries have turned to the Fund, for now just for advice, to shore up confidence in financial systems struggling to gain access to credit and to defend their currencies from investors' risk aversion.

    Ukraine was the fourth country in a matter of days after Hungary, Serbia and Iceland to say it would approach the IMF.
    IMF officials were due to arrive in Kiev later on Wednesday.
    "At the end of the mission, if it proves necessary, we will discuss the possibility of extending a standby to Ukraine, an amount appropriate to Ukraine's needs at this time," said Serhiy Kruglyk, director at the bank's international relations office.
    "We need the support of international financial organisations, so that we know that in case we need it, we have additional support, although today we are managing fine by ourselves," he told Reuters.
    There has been widespread unease over the hryvnia currency's weakness thanks to a gaping current account deficit that may not be covered in the future by inflows of foreign investment as European and the U.S. economies slow.
    The hryvnia hit an all time low to 5.9 per dollar last week, and was lifted thanks only to central bank interventions.

    International ratings agency Fitch has already cut its outlook to 'negative' on Ukraine, warning of a higher risk of a currency crisis. Moody's said it was monitoring the situation.
    The fear is that by supporting the currency -- for years one of the few constants in a country gripped by political turbulence since the 2004 "Orange Revolution" -- the central bank may give up all its foreign currency reserves.
    Russia and Kazakhstan have already formulated multi-billion dollar plans to shore up their banking sectors and make sure credit is available.
    But with Ukraine, "Where would the money come from?" asked Unicredit analyst Dmitry Gourov. "Kazakhstan and Russia have huge oil funds and export revenues from minerals. Here, this is where the IMF comes in."

    Its foreign currency reserves stand at $37.5 billion, which covers about 3.7 months of imports. Central Bank Chairman Volodymyr Stelmakh said on Monday he expected the current account deficit to almost triple to about $15 billion from $5.9 in 2007.
    Steep increases for Russian gas imports have been behind the rapidly widening gap and do not bode well for the future -- Russia's Gazprom said it may raise gas prices to $400 per 1,000 cubic metres in 2009 from $179.50 that Ukraine pays now.
    Analysts have said liquidity amongst banks has not so far been an issue. But the country's sixth largest bank, Prominvest, has been placed in receivership after a run on the bank following speculation of a murky takeover deal.
    The central bank has been careful not to connect Prominvest's problems with the global crisis that has felled giants in Europe and the United States.
    The bank has injected 10.9 billion hryvnias ($2.23 billion) into its banking system this month to Oct. 13, almost double the amount for the whole month of September, and adopted measures to keep deposits in banks while curbing borrowing and lending.

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