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Ukraine under pressure from currency fall, gas supply threat

25 February 2015 19:02 (UTC +04:00)

Baku-APA. Ukraine came under increasing economic pressure from a collapsing currency and a threat to its gas supplies from the Kremlin on Wednesday, just as a long-awaited ceasefire took hold in the east, APA reports quoting Reuters.

As the truce appeared to be coming into force, the Ukrainian army reported no combat fatalities in the past 24 hours, but the news did nothing to halt a currency collapse that forced the central bank to ban most trading.

In rebel-held eastern Ukraine, pro-Russian separatists were withdrawing heavy guns from the front. Kiev said it was too early to do likewise, but its acknowledgement that most of the front was quiet suggested it too could implement a truce that had appeared stillborn when the rebels launched a major offensive last week.

The cautious good news from the front has come amid dire economic consequences for a country teetering on bankruptcy.

With the hryvnia currency in free fall as investors flee, the central bank called a halt by banning nearly all commercial currency trading until the end of the week.

Prime Minister Arseny Yatseniuk said the ban was bad for the economy. He had learned about it on the Internet and would demand an explanation from central bank chief Valeria Gontareva.

The central bank said the move was necessary to stabilize the currency amid "unfounded" demand for foreign exchange.

Gontareva said there was no fundamental reason for the panic in the currency market. She said Kiev expects to receive $8 billion from the International Monetary Fund this year.

The bank's decision left the true value of the currency in limbo. Hours after imposing the ban, the central bank offered to buy dollars for 21.7 hryvnias, meaning anyone forced to sell would receive a third less than before the ban, and around half the rate available on the street.

Exchange kiosks in Kiev were selling limited amounts of dollars for 39 hryvnias, around 20 percent worse than rates advertised in the windows of commercial banks where dollars were not available.

A construction worker exchanging dollars at a kiosk in a grocery shop in return for a bag filled with thousands of hryvnia, laughed and told shoppers: "Soon we will have to walk around with suitcases for cash, like in the 1990s."

The hryvnia has lost at least half its value so far this year after halving over the course of 2014.

In a potential new blow, President Vladimir Putin warned that Russia would halt gas supplies to Ukraine, for the fourth time in a decade, if Moscow did not receive advance payment. That could disrupt flows to Europe, which receives around a third of its gas from Russia, with 40 percent shipped via Ukraine.

Criticizing Ukraine for cutting off gas to eastern regions under the control of the pro-Russian separatists, Putin said: "Imagine these people will be left without gas in winter. Not only that there is famine ... It smells of genocide."

"We hope ... that gas supplies will not be interrupted. But this does not depend only on us, it depends on the financial discipline of our Ukrainian partners," Putin said.