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UPDATE 1-Ukraine's central bank chief eyes anti-crisis steps due to rail blockade
February 22, 2017 / 8:25 PM / 9 months ago

UPDATE 1-Ukraine's central bank chief eyes anti-crisis steps due to rail blockade

(Updates, adds changes to some currency controls)

By Natalia Zinets and Alessandra Prentice

KIEV, Feb 22 (Reuters) - The Ukrainian central bank will take “anti-crisis measures” if a rail blockade in Ukraine’s war-torn east continues, resulting in lost foreign exchange earnings, the head of the regulator told Reuters.

For the past month, opposition lawmakers and military veterans have blocked rail traffic from territory held by Russia-backed separatists, preventing vital coal supplies from reaching Ukrainian power plants and the steel industry, whose exports are a keystone of the economy.

“Of course there could be negative consequences for our balance of payments,” central bank Governor Valeriia Gontareva said in an interview on Monday.

“We may see a drop in steelmakers’ foreign currency revenue. This could amount to maximum $2 billion, according to our top estimates,” she said.

Companies are already feeling the squeeze. On Monday, Ukraine’s largest steel producer, Metinvest, said the blockade had forced it to halt production temporarily at one of its mills and several coal mines.

Gontareva said last week in Washington she had discussed with the International Monetary Fund, Ukraine’s main creditor, what steps should be taken in case of increased macroeconomic turbulence stemming from the instability in the east.

“Our baseline scenario is that everything is working for now, but we have a rainy day scenario,” she said. “If steelmaking stops we will take anti-crisis measures.”

In 2016, steel-related exports generated $8 billion or around 25 percent of total foreign currency revenue, according to central bank data.

Gontareva said a worst-case scenario may require the bank to impose extra restrictions on the currency market instead of pushing ahead with IMF-approved softening of currency regulations.

The bank has promised to ease the strict currency controls implemented in 2014 and in early 2015, when widespread panic following deadly clashes between Ukrainian troops and Russia-backed rebels pushed the national hryvnia currency to historic lows.

A $17.5 billion IMF bailout package has since helped stabilise Ukraine’s economy, and the central bank has begun to ease some of the restrictions including those relating to mandatory foreign currency sales and limits on withdrawals.

Provided the threat of macroeconomic stability recedes, the central bank is keen to improve conditions for exporters, Gontareva said.

“Everything linked to export-import and foreign direct investment is our priority. There shouldn’t be any restrictions. The top priority that we want to allow is the payment of (foreign) dividends for 2016,” she said.

To this end, the regulator on Wednesday removed restrictions on mandatory currency sales for non-residents, provided the cash is used as collateral to participate in tenders or auctions by residents.

Gontareva said another possible step would be to raise the limit on bank’s foreign currency exposure to 5 percent of capital from the current 0.5 percent among other possible steps. (Editing by Hugh Lawson and Toby Chopra)

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