Feb. 6 (Bloomberg) -- Ukraine’s opposition warned President Viktor Yanukovych that the country is running out of time to solve its political crisis after the hryvnia plunged to a five-year low against the dollar this week.
Vitali Klitschko, head of the opposition UDAR party, repeated demands yesterday for presidential elections or constitutional change. Acting Prime Minister Serhiy Arbuzov said a failure to compromise was weakening Ukraine. Parliament may meet for a special session Feb. 11 to discuss the issue, Speaker Volodymyr Rybak said today.
The crisis was sparked when Yanukovych snubbed a co-operation pact with the European Union in favor of a $15 billion loan and a gas-price cut from Russia. Seven demonstrators died amid clashes last month as the opposition seized government buildings in Kiev and across the nation.
“We do not have time,” Klitschko said in a statement on his website. “Every day or every hour counts. We should not allow a new spiral of conflict.”
The hryvnia has lost 6.5 percent this year, the most after the Argentine peso among all currencies tracked by Bloomberg, trading at 8.855 per dollar today by 6:49 p.m. in Kiev.
The National Bank of Ukraine conducted a “sizable intervention” yesterday to counter the slump, buying hryvnia at 8.7 per dollar, Serhiy Yahnych, an analyst at BNP Paribas SA’s unit in Kiev, wrote in response to e-mailed questions.
Some Kiev banks have run out of dollars, Ukraine’s Channel 5 reported yesterday. The NBU “has and will” intervene to support the hryvnia “when needed,” Valeriy Lytvytskyi, an adviser to the central bank’s governor, told reporters today. The regulator has spent “hundreds of millions” of dollars to support the currency, he said.
“The hryvnia rate’s fluctuation will be back to normal, we are working on that,” Lytvytskyi said. “We don’t see reasons for the tendencies of recent days to become permanent.”
The central bank “appears to have no power to stop the hryvnia devaluation,” Tatiana Orlova, an economist at Royal Bank of Scotland Group Plc in London, wrote in a report today.
“The political stalemate, exacerbated by a suspension of the Russian financial aid package, increases the risk of a sovereign default later this year,” Orlova said.
Foreign reserves probably shrank to $18.7 billion in January, the lowest since 2006, from $20.4 billion a month earlier, according to the median estimate of eight analysts polled by Bloomberg before the central bank publishes the data tomorrow. Reserves fell to $17.8 billion as of yesterday, the Interfax news service reported today, citing a person it didn’t identify.
The cost to insure Ukrainian debt against non-payment for five years using credit-default swaps rose 105 basis points, or 1.05 percentage points, to 1,105, the highest level since Dec. 10 on a closing basis, according to CMA data. Yields on the government’s dollar-denominated bonds due June jumped 215 basis points to 16.91 percent, the highest since Dec. 13.
Yanukovych supporters said the opposition’s failure to compromise was hurting the hryvnia after the president accepted his ally Prime Minister Mykola Azarov’s resignation and offered to share power. Yanukovych pledged today not to escalate the crisis and said he’d speed the release of detained protesters.
“Political instability is putting pressure on the foreign currency market,” Arbuzov said at a government meeting yesterday. “Every extra day of confrontation and unwillingness to reach a compromise makes our country weaker.”
The central bank’s dwindling war chest and the collapsing hryvnia are a risk to Ukraine’s financial stability, according to Fitch Ratings. They also threaten to intensify a selloff that’s made the nation’s bonds the worst-performing in Europe this year, even after a rebound earlier this week, amid speculation an aid package may be forthcoming from the EU and the U.S.
Russia, which bought $3 billion of Ukrainian bonds in December to help avert a default, has delayed the next tranche of aid until after it studies policies from the new government.
The U.S. may back the International Monetary Fund or an international aid package to a new Ukrainian government, State Department spokeswoman Jen Psaki said in Washington yesterday. While no decision has been made, a loan may be approved before new elections, she said.
In a non-binding resolution today, the European Parliament called for the “preparation” of sanctions against regime officials, lawmakers and their “business sponsors.” The document also foresees a full-time EU Parliament mission to Kiev to act as a mediator.
Sanctions require a unanimous decision by the 28 national governments. They will consider their next moves on Feb. 10 when EU foreign policy chief Catherine Ashton chairs a meeting of foreign ministers in Brussels.
Ashton was in Kiev to meet with both sides and said there’s “great concern to see that those who have committed violence are brought to justice.”
“The focus right now is on the diplomatic engagement,” Ashton’s spokeswoman, Maja Kocijancic, told reporters in Brussels today. “All 28 foreign ministers will look at the situation on the ground and what kind of steps the European Union should take.”
Russian President Vladimir Putin’s spokesman warned in an interview on Kommersant FM radio that the country’s growing debt for natural gas was “concerning.” Ukraine owes $3.3 billion for gas supplies in 2013 and January.
Protesters continue to face off against police across barricades in central Kiev, where a box marked as containing medicine exploded today, injuring one demonstrator.
Viktor, a 46-year-old entrepreneur from Rivne in western Ukraine, said he wouldn’t leave until early elections are called or until the adoption of the 2004 constitution, which would lessen presidential power.
“We support Klitschko as long as he supports the people’s will,” said Viktor, who refused to give his last name for fear of reprisal, as he helped guard the barricades in improvised body armor. “Sanctions against Yanukovych’s gang are the way to negotiate. Money is the only thing that they understand, and sanctions would get their attention.”
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