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Ukraine economy 'on the brink'

Thursday, February 26, 2015 - 02:19

Ukraine comes under greater economic pressure after unexpectedly banning most currency trading and then abruptly reversing course, wreaking havoc on the hryvnia. As David Pollard, reports the move comes as a truce in the east appears to be taking hold.

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Ukrainian troops on the move - this time away from the front line. Their withdrawal revives hopes for a ceasefire in the east of the country. But elsewhere, another battle is raging - against bankruptcy. And a currency in apparent freefall. Jane Foley is senior currency strategist at Rabobank. (SOUNDBITE) (English) JANE FOLEY, SENIOR CURRENCY STRATEGIST, RABOBANK, SAYING: ''If we look at reports suggesting that ordinary citizens are concerned that they have to carry around bagfuls of cash, then clearly this is an economy which really has been pushed to the brink and with no clear confidence that this crisis is about to end, things could certainly get worse.'' Valeria Gontareva has cash - she's Ukraine's central bank governor. Quite how she'll use it is in some debate. The central bank banned currency trading on Wednesday. Then, within hours, after a sharp rebuke from a furious prime minister, the decision was reversed. He hadn't been told - and had only found out about it via the Internet, he said. More havoc for the hryvnia - after a massive plunge Gontareva says defied reason. (SOUNDBITE) (Russian) CHIEF OF CENTRAL BANK OF UKRAINE, VALERIA GONTAREVA, SAYING: "These irrational movements are linked solely to irrational market behaviour which is driven more by fears than by rational understanding of what is going on in our market." Ukraine faces the threat of rampant inflation on a currency that's halved this year - after halving in 2014. As well as needing bagfuls of money to buy basics, Ukrainians may also face more hardship. If President Putin delivers on a threat to cut off gas in a continuing row over payments. (SOUNDBITE) (Russian) RUSSIAN PRESIDENT, VLADIMIR PUTIN, SAYING: "If the prepayment does not come, Gazprom will suspend deliveries. Of course, this may create a threat to transit to Europe, to our European partners." Europe receives a third of its gas from Russia - roughly 40 percent goes via Ukraine. More reason perhaps for the IMF to step in. A 17 billion dollar bailout has been promised. The IMF says its ready to help with the currency crisis too. Though Ukraine may also need to help itself. (SOUNDBITE) (English) JANE FOLEY, SENIOR CURRENCY STRATEGIST, RABOBANK, SAYING: ''Even if the crisis with Russia is resolved, there is a lot of work for Ukraine to do in terms of economic reform and particularly in trying to combat corruption.'' Economic recovery could be a long road ahead.

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Ukraine economy 'on the brink'

Thursday, February 26, 2015 - 02:19