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Ukraine: Crisis, Microfinance and Politics

Categories: Eastern & Central Europe, Ukraine, Development, Economics & Business, Governance, Politics

Below is a selection of recent posts from English-language blogs on the political and economic crisis in Ukraine. (An earlier post on the financial crisis in Russia is here [1], and in other countries of Central and Eastern Europe – here [2].)

Michelle Knisley of Greetings from Kyiv writes [3] that because of the crisis the atmosphere in the Ukrainian capital has been “a little extra somber” lately; her post is titled “Christmas Or Crisismas?”:

[…] Everywhere you go, everyone here is talking about the “crisis.” You even hear the word in passing conversations as you go down the street. The “crisis” is on everyone's mind and with good reason. The hrivnya going out of control, […] and there are reportedly no dollars to buy. Ukrainians are truly experiencing a financial crisis of epic proportions.

Last week half of Kyiv's residents had their hot water/radiators turned off. This was due to unpaid bills both by residents (some people are so poor they cannot possibly pay them) and also mismanagement by the government. […] Supposedly the hot water is back on but now the rumors are flowing that utilities in some areas of Kyiv will be raised ten times higher. This means rents will increase. It seems that no matter what the solution is for any problem, it only creates a reaction that creates another crisis in a different area of life.

MoldovAnn writes [4], too, that “[t]his holiday season will not be so merry for many Ukrainians” – and here is why:

Public transportation rates increased 4x
Hot water shut off in much of Kyiv for 3-4 days
Heating reduced throughout the city, some buildings without heat periodically
Price increases almost daily, market stands not bothering to write new prices anymore, instead posting “+20%” to yesterday’s prices
Bank deposit accounts frozen, people can’t withdraw their money
Pensions not paid
Government employees not sure if they’ll get paychecks this month
Layoffs, downsizing, bankruptcies
Falling hrivna, salaries’ value reduced by nearly half
Banks advertising on their homepages auctions on cars and other items repossessed

Evie of Kiva Stories from the Field writes [5] in more detail on what it's like to live in Ukraine now:

[…] In the western world, “political tensions” essentially mean that 24-hour cable networks switch to all politics, all the time. In Ukraine, due to “political tensions” between local officials, last week many districts of the capital city of Kiev lost heat and hot water. These are government-controlled commodities – the local government can literally shut off your apartment building’s gas heating at a whim. In sub-zero temperatures and bitter continental winter conditions, losing heat for a week is a hardship to pale at. People couldn’t even wash dishes, because the water was literally freezing out of the tap. Even now, three days after the heat was turned back on by these same officials, radiators are merely lukewarm, homes are still freezing, and people are sick with colds and flu.

In addition, the value of the UAH (or “grivna”) has fallen from 5.05gr to $1 on October 1 to 9.45 to $1 on December 17 – a loss of nearly 50% of its value in two and a half months. This has a direct impact on many citizens, since half of all bank loans and most rents are denominated in either dollars or euro, but most people get paid in grivnas. Imagine that your rent was 2,525 grivnas ($500) per month on October 1. At current exchange rates, your rent due on January 1 is now 4,725 grivnas.

Banks are feeling the crunch most keenly, since most of their own debts are denominated in foreign currency as well. Informal reports from Kiev state that it is nearly impossible for individuals or businesses to get dollars out of ATMs or money changers – banks are holding on to all foreign currency reserves and refusing to sell them. One source attempted to find USD from over 20 different ATMs and exchange kiosks, with no luck. […]

The blogger – who is a Ukraine-based fellow [6] with Kiva [7], a U.S. NGO that helps “individuals to lend directly to unique entrepreneurs in the developing world” – also explains how the crisis is affecting microfinance initiatives in Ukraine:

[…] When a lender sends $25 through Kiva to an entrepreneur, that money is received and disbursed by our field partner in that country – in this case, HOPE Ukraine. The field partner is a microfinance bank which is authorized as a financial institution in that country. […]

When Kiva sends $300 to an entrepreneur, it’s exactly that: $300. So we’re expecting that same $300 back, regardless of the value of the local currency. Imagine that HOPE Ukraine had raised $300 on Kiva on October 17 for an entrepreneur named Tanya. They would have converted it into grivnas at 5.05, and given Tanya 1,515 grivnas on a 10-month term. Her principle payments are 152 grivnas, which is what she gives to HOPE Ukraine each month, and HOPE Ukraine promises to convert it and send it back as $30. However, when HOPE Ukraine converted Tanya’s monthly payment back into dollars on December 17, that 152 grivnas is no longer worth $30 – now it’s worth only $16. HOPE Ukraine must then pay $14 out of its own pocket in order to send Kiva lenders a $30 repayment.


Due to the crisis, none of the big traditional banks will give out loans anymore, so everyone is coming to HOPE Ukraine. They have as much business as they can handle, and more. And because the grivna is worth less, they can lend out in higher amounts. Since Kiva has a $1200 per entrepreneur loan cap, back in October no Kiva clients could borrow more than 6,060 grivnas. Today that $1200 loan cap is worth 11,340 grivnas – so they can service clients who have a greater range of financial need. And they can use the extra income they’re generating on all these new loans to pay that $14 on Tanya’s loan.

Microfinance institutions in these circumstances begin to seem, if not recession-proof, at least recession resistant. […]

Meanwhile, Ukrainian politicians seem to be as detached from reality on the ground as ever.

Total opposition. All the main political players and institutions in Ukraine are in opposition to each other.” This is the title of Tetyana Vysotska's latest post [8] on What's Up, Ukraine?, in which she describes the current political situation:

[…] So, today the Prime Minister of Ukraine is in opposition to the President of Ukraine and to the National Bank of Ukraine. The President of Ukraine is in opposition to Prime Minister. The National Bank is also acting like a political body, declaring its non-support of the Government and its policies. Official opposition – the Party of Regions – is declaring it is against all the powers mentioned above, and is waiting for spring to come to power after the fail of the “Orange leaders”. The new-elected Speaker of the Parliament Volodymyr Lytvyn is claiming for neutrality, but in fact is in opposition to everyone who is interested in the snap parliamentary election, which would take the high post in Parliament off from him.

Ukrainiana (here [9]) and Foreign Notes (here [10] and here [11]) have more on the complex relationship between Ukraine's president, prime minister and the National Bank.

Chernobyl and Eastern Europe shares the results of a recent poll [12] on how the country's politicians would fare if the presidential election were held now:

According to a social survey titled “Crisis 2008: Ukrainian politics in the mirror of public opinion,” Party of Regions leader Viktor Yanukovych and current Prime Minister Yulia Tymoshenko would both reach the second round of a presidential election, if it was held now. Current President Viktor Yushchenko would not make it to a second round. […]