Flight of ‘Black Elephants’ Has Ukraine’s Gontareva on Alert

Updated on
  • Global economy faces ‘very dangerous’ times, Gontareva says
  • IMF shielding Ukraine, central bank governor says in interview

The outlook for the global economy is so unpredictable that even crisis-ridden Ukraine’s central bank governor is grappling for new metaphors to describe it.

“The situation is very dangerous and nervous everywhere,” Valeriya Gontareva said in interview in Kiev on Wednesday. “All these uncertainties, they are no longer black swans, they are black elephants flying around the world.”

Valeriya Gontareva on Feb. 8.

Photographer: Vincent Mundy/Bloomberg

Ukraine is rebuilding its economy after two revolutions in the span of a decade and a military conflict with Russia-backed separatists in the country’s eastern industrial heartland. A $17.5 billion bailout led by the International Monetary Fund has been beset by delays as Ukraine failed to meet targets for an economic overhaul. New challenges include a potential rollback of globalization and the threat of currency wars as the results of protectionist policies after Brexit and Donald Trump’s election in the U.S., Gontareva said.

Policy makers in Kiev left their benchmark interest rate unchanged at 14 percent last month after the central bank raised its 2017 inflation forecast to 9.1 percent from 8 percent. Consumer prices last month rose 12.6 percent from a year earlier, the most in also a year, spurred by a weaker currency.

Read More: Ukraine’s Economic War

The inflation rate will drop more quickly in the fourth quarter as base effects become favorable again, Gontareva said. That should allow the central bank to ease policy while still keeping its benchmark above the consumer-price index, she said. A surge in commodity prices could yet boost gas prices and inflation, according to Gontareva.

Capital controls, introduced in 2012 and tightened two years later to contain a spiraling currency crisis, may be eased if “we feel that the situation is getting better, all these risks we see now do not materialize” and the cooperation with the IMF continues, Gontareva said. The “first and most important” step is loosening controls on dividend payments, she said.

Ukraine will sign a memorandum with the IMF for the next bailout payment of about $1 billion “in a few days,” according to Gontareva. The tranche may arrive after the lender’s board approves it at the end of February or in early March, she said.

The government is seeking four disbursements totaling $5.5 billion by year-end to boost central bank reserves to $21.3 billion from $15.5 billion in January, Gontareva said. It may also receive 600 million euros ($640 million) from the European Union in the coming weeks, European Commission President Jean-Claude Juncker said Friday in Brussels.

The hryvnia, which plunged 42 percent against the dollar in 2015-2016, has weakened 0.9 percent this year as the central bank has regularly intervened, which Gontareva described as attempts to smooth market movements. It reached its lowest level since January 23 on Friday in Kiev. The central bank sold $26.9 million at an auction to support it.

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