Russia: #39;Supply emergency gas to Ukraine #39; - Medvedev
Russian Prime Minister Dmitri Medvedev directed the Ministry of Energy and Gazprom to prepare a proposal for supplying eastern Ukraine with gas, Thursday. Th...
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Russia: 'Supply emergency gas to Ukraine' - Medvedev - Video
Videos street fight hard in Debaltsevo, Ukraine News Today!
Latest Hot News from Ukraine, New Russia (Donetsk DPR, Lugansk LPR), Crimea! Subscribe to the channel: https://www.youtube.com/channel/UCoYaoBsui3QOW6ZiznLW9...
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onetsk, st Bashkir,Truce continues 21.02.2015.Ukraine War,News Today!
UKRAINE WAR LAST NEWS TODAY(the best new and hot vidio) Subscribe to the channel!!!THANK YOU War in Donbass - fighting on the territory of Donetsk and Lugansk regions of Ukraine with the ...
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onetsk, st Bashkir,Truce continues 21.02.2015.Ukraine War,News Today! - Video
Source: Bloomberg
Hyperinflation is always and everywhere a political phenomenon.
It happens after wars or revolutions, when governments have to print the money they need because there's not much of an economy left to taxwhich brings us to Ukraine.It had a revolution, it has a war now, and it's all but broke. Inflation is officially 28.5 percent, but, according to Johns Hopkins professor Steve Hanke, it's really more like 272 percent. And that's only going to get worse as long as Ukraine's currency does.
It'shard to overstate how challengedUkraine is. Its economy has actually shrunk since communism ended in 1991. Or since 1992. Or even 1993. That's because communism never really did end. Ukraine just traded party bosses for oligarchs. Sure, it privatized companies and introduced markets, but Ukraine didn't shed its Soviet-era corruption or inefficiency. There was barely any rule of law, tax rates had to be jacked up to make up for all the wink-wink, nod-nod tax evasion, and, as a result, even more of the economy entered the shadows. The IMF estimates that Ukraine's undergroundand non-tax-payingeconomy is as much as 50 percent of GDP.
Now Ukraine's not-so-cold war with Russia is destroyingthe little that's left. It's not just that Ukraine has lost the factories in the rebel-held east that make up a quarter of its industrial capacity. It's that itcan't afford to fight a war against what is still its biggest trading partnerRussia. The only way for Ukraine to pay its bills is to dip into its reserves. But those have dwindled down to $6.42 billion, only enough for a little more than a month of imports. (Three months worth is considered the absolute least you can get by with). So Ukraine has done what all countries do when they've run out of money: go to the IMF. It's announced a $17.5 billion bailout in return for tough reforms, including cutting energy subsidies for households. But even that won't be enough to stop Ukraine from defaulting on its debtor, if you're feeling more polite, restructuring its bonds. Those have already fallen to less than 50 cents on the dollar in anticipation of the nonpayment to come.
In short, Ukraine doesn't have any foreign currency and doesn't have the ability to earn any more. And that means there's nothing left to support the value of its currency, the hryvniaso it doesn't have much anymore. Ukraine had been pegging it at 8 per dollar before the war began, but was then forced to let it slide down to 16 per dollar, where it tried to re-peg the hryvnia. This failed. Ukraine didn't have the dollars to prop up its currency for very long, and when it belatedly admitted this, the hryvnia collapsed. Then it collapsed some more after the latest peace deal fell apart. So Ukraine's central bank has done the only thing it could do: everything. It made its capital controls even stricter, banned currency trading, then reversed the ban on currency trading but begun intervening directly. It's worked a little. Well, at least the hryvnia has rebounded from a low of 33.5 to now 27.2 per dollar. But that, as you can see above, is still a 70 percent fall from the start of 2014.
When a currency is dying like this, it's hard for the inflation statistics to keep up. But, as Hanke explains, we can use the exchange rate to figure out how much prices are really going up. There are a few ways to think about why this is, but the most intuitive is that a cheaper currency means higher import prices, which spills over to the rest. In any case, this tells us that Ukraine's annual inflation is already 272 percent, and, even worse, is picking up speed. Indeed, its monthly inflation rate is 64.5 percentwhich translates to 39,000 percent inflation over a yearmore than enough to qualify it for "hyperinflation" status.
The good news, if there is any, is that the IMF money should stabilize Ukraine's currency, and with it their inflation. The not-so-good news, though, is that even with this money Ukraine will still have to do a lot of austerity. And the bad news is that it will have to really raise rates, knee-capping growth even more, to rein in the inflation it already has. (Higher rates should also mean a higher hryvnia, but that may not be the case, as Paul Krugman explains, if they hurt the economy so much that foreign currency debts are harder to pay back). Everything that would save Ukraine's currency, in other words, would make its economy worse in the short-term. But it can't have a decent economy in any term if it doesn't stop its currency's free fall. So even if everything goes right, Ukraine's in for a lot of pain.
There are no good choices when you're bankrupt.
Matt O'Brien is a reporter for Wonkblog covering economic affairs. He was previously a senior associate editor at The Atlantic.
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Wonkblog: Ukraine unofficially has 272 percent inflation
Ukraine Sea Port Protest: Workers rally in Illichivsk against provocation
Some 1500 workers from the Illichivsk commercial port have held a protest against provocations in southern Ukraine. They say though privatization of the por...
By: UKRAINE TODAY
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Ukraine Sea Port Protest: Workers rally in Illichivsk against provocation - Video