Ukraine Pledges to Protect Deposits as Kiev Rally Called

Photographer: Vincent Mundy/Bloomberg

Customers queue to withdraw hyrvnia currency from an automated teller machine (ATM) outside a Privatbank CJSC bank branch in Kiev on Feb. 20, 2014. Close

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Photographer: Vincent Mundy/Bloomberg

Customers queue to withdraw hyrvnia currency from an automated teller machine (ATM) outside a Privatbank CJSC bank branch in Kiev on Feb. 20, 2014.

Ukraine is weighing measures to stem cash withdrawals after as much as 7 percent of deposits were taken from banks during last week’s bloody uprising, underscoring the need for action to fend off a default.

Withdrawals peaked with as much as 30 billion hryvnias ($3.1 billion) Feb. 18-20 as police and anti-government demonstrators fought in the center of Kiev, Natsionalnyi Bank Ukrainy Governor Stepan Kubiv, 51, said in his first interview since being appointed Feb. 24.

A rally will be held on Independence Square this evening as lawmakers seek to install a new government. The interim administration is trying to secure as much as $35 billion in financial aid to fend off a possible default. Acting President Oleksandr Turchynov yesterday pushed back a parliamentary vote on the formation of a new administration to Feb. 27 after indicating that a new administration should be formed quickly.

“Ukraine’s economy needs rescue and that adds pressure on the revolutionary political forces to create a truly national unity government,” said Lilit Gevorgyan, senior economist at IHS Global Insight in London, said by e-mail. “The large bailout plan that Ukraine currently seeks won’t be handed out by international donors to a weak and non-inclusive government.”

Outflows from banks slowed in western and central Ukraine and Kiev as European foreign ministers last week negotiated a pact to end the violence, Kubiv said near the central bank, about 500 meters (1,641 feet) from the main protest venue, Independence Square. Withdrawals remained high in the country’s east amid concerns over tensions with neighbor Russia. Kubiv estimated total deposits at about 430 billion hryvnia.

Hryvnia Drops

The hryvnia, which is managed by the central bank, lost 6.4 percent to 9.800 per dollar at 6:07 p.m. in Kiev yesterday, extending its slump this year to 16 percent, according to data compiled by Bloomberg. The yield on the government’s dollar bonds maturing in April 2023 climbed 30 basis points to 9.56 percent, after falling 211 basis points in the last three days.

The Cause of Unrest in Ukraine

The currency may strengthen once “a new government is formed as it announces a clear stabilization program and international aid is provided,” Kubiv said.

The central bank plans to provide “stabilizing loans” to five banks, Kubiv said, without providing details. Central bank reserves declined to about $15 billion from $17.8 billion at the end of January as the regulator spent dollars to arrest the hryvnia’s decline, he said.

Financial Lifeline

With former President Viktor Yanukovych on the run, Ukraine’s new leaders are grasping for a financial lifeline as Russia weighs the fate of a $15 billion bailout it granted in December. Russia’s deputy finance minister said there’s a high chance Ukraine will default. The U.S. and the European Union have pledged aid to the new administration.

The International Monetary Fund will probably send a team to Ukraine as soon as the country seeks financial aid, Managing Director Christine Lagarde told Stanford University students yesterday in California.

“We are ready to engage,” Lagarde said. “We will probably shortly send some technical assistance support to the country because this is our duty to a member, if that member asks,” which is “clearly what is likely to happen.”

Default Risk

The new government should be largely technocratic and should avoid “political quotas,” said Oleksiy Haran, a member of the Maidan Council, which represents the protesters whose three-month campaign toppled Yanukovych.

The Maidan Council called a rally for 7 p.m. today, where activists will discuss proposals for potential government members.

Ukraine risks default without “significantly favorable changes” in its political crisis, Standard & Poor’s said Feb. 21 as it cut the nation’s credit rating to CCC, leaving it eight levels short of investment grade.

Russian Deputy Finance Minister Sergei Storchak yesterday echoed those concerns. Russia won’t be the party to declare default, though it’s under no legal obligation to disburse the remaining $12 billion of the bailout, he told reporters in Moscow.

Lawmakers moved quickly to appoint Kubiv, the ex-chairman of Lviv-based VAT Kredobank, to head the central bank after voting out Ihor Sorkin. Kubiv plans to invite an IMF mission, the Unian news service reported, without giving details. The central bank imposed capital controls this month to stem the hryvnia’s slide.

Creditor Talks

“Talks are being held with all possible creditors,” Kubiv said on the website of his party, Batkivshchyna. “We’re in talks with the IMF on changing the investment climate so investors come to Ukraine and believe in stability.”

As well as securing aid, politicians in Kiev want to determine Yanukovych’s whereabouts to arrest him on murder charges. Lawmakers yesterday asked the International Criminal Court in the Hague to punish officials for crimes against humanity after more than 80 protesters and police officers died in riots.

Andriy Klyuyev, a former aide to Yanukovych, has been hospitalized with a gunshot wound, his spokesman Artem Petrenko said by phone. Klyuyev is probably in Kiev, according to Petrenko, who said the injury isn’t life-threatening.

Events in Kiev are unsettling residents in Ukraine’s Russian-speaking east and south. In the city of Simferopol in Crimea, crowds gathered outside the regional parliament demanding its speaker denounce the new authorities in the capital and weigh a referendum on possible adhesion to Russia.

Russia, which maintains a naval base in Crimea, vowed not to meddle in Ukraine’s affairs and urged the West to follow suit. Concern in Russia that the EU is prying in Ukraine’s sovereign affairs is wide of the mark, according to Catherine Ashton, the the 28-member bloc’s foreign-policy chief.

“We offer support, not interference,” she said yesterday in Kiev. “It’s very simple -- we want to support and help this country to be strong.”

To contact the reporters on this story: Volodymyr Verbyany in Kiev at vverbyany1@bloomberg.net; Daryna Krasnolutska in Kiev at dkrasnolutsk@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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