Chicken Kiev

by Sean Corrigan
by Sean Corrigan

In Kiev, it seems the people have been gripped with the sudden fear that the local central bank’s manipulation of the currency – the hryvna – may “wipe out their savings”

Indeed, things have become so frenetic that Economy Minister Serhiy Teryokhin had to urge reporters:

“Don't succumb to panic – it won't get worse.”

This didn’t mollify Nestor Shufrych, a member of the opposition Social Democratic Party, who gave vent to fierce criticism of the central bank's action, saying that Ukraine's currency was “floating in the air, with no ground to support it.”

But what heinous monetary crime was the National Bank accused of?

Why! On Thursday, it suddenly and arbitrarily set the hryvna's exchange rate against the dollar 4% higher, at UAH5.05 to $1, compared to the UAH5.25 which prevailed a day earlier.

Yes, Dear Reader, you read that aright: the bank is being lambasted for taking the (admittedly all-too rare) step of making its people’s money buy more abroad!

But, how can this be a threat to savers, you ask?

Because the Ukrainians, it seems, have become so used to the rampant inflation which bedevils them at home that they keep most of their savings in dollars, officially or otherwise!

As the Russian press reported (seemingly with a straight face), the good citizens of Kiev “called the currency move outright theft, and exporters complained that it could drive them into bankruptcy.”

Unrepentant, National Bank head Volodymyr Stelmakh defended the new exchange rate before a parliamentary session, telling lawmakers that “strengthening the national currency is only for the welfare of the Ukrainian people.”

Stelmakh is correct in espousing this v-e-r-y unfashionable view, of course, though he might have figured that encouraging the money supply to triple in just the past three years, and to rise tenfold in the past 6 1/2, was hardly guaranteed to bring about this laudable aim.

Showing that economics is not the strong suit among the populace of the latest EU aspirant and NATO-wannabe, this modest rise in the parity has set the citizens grumbling anew, adding to complaints about “rising meat and gasoline prices since the new government came to power” – increases obviously not exactly unrelated to the hryvna’s former weakness!

All in all, this leaves us with a vision of a truly Swiftian world where, not content with instantly taking to the streets – complete with supporting rock-bands and miraculously-appearing tent cities – every time some ex-Soviet crook wins or loses an election contest with another ex-Soviet crook, the NGO-sponsored Chromatic Revolutionaries will now protest currency movements – or maybe stock prices, or credit spreads – in such a “direct” fashion, too.

“What do we want? A lower dollar! When do we want it? Now!”

“Power to the Peso! Death to the Koruna!”

“2-4-6-8. Why won’t the Yuan appreciate!”

Lenin must be spinning in his grave fast enough to melt the wax!

Incidentally, Ukraine’s present Prime Minister and sometime gas oligarch, “Red” Julia Timoshenko, has addressed the petrol price problem the old-fashioned mafiyah way – by using the explicit threat of state violence to subvert the market.

As Kommersant reports, she recently summoned TNK-BP, among others of the country’s larger energy suppliers, to a meeting at which she demanded it cap prices at the pump.

Serendipitously, her negotiating position was enhanced by the simultaneous appearance of a fabricated press release suggesting her ministry was about to launch a major investigation of the firm’s 2000 takeover of state assets (the joint leader of the “Orange” party would know all about these sorts of shenanigans, you may be aware, since she herself is currently the subject of an arrest warrant issued by the Russian tax authorities for her rôle there, during the Yeltsin era).

Had a government leader in Ukraine’s eastern neighbour pulled a similar stunt with a partly-owned Western company, we can only imagine the headlines.

But, then, the newest “democracy” in the former-USSR can clearly expect to be spared any opprobrium, since the fact of its pleasing little people’s coup has surely lent an unquestioned legitimacy to all the government’s subsequent actions.

Any thoughts, M de Tocqueville?

This article first appeared on Sage Capital's Weblog.

April 27, 2005

Sean Corrigan [send him mail] is an investment analyst in Switzerland.

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