Oleksandr Klymenko Official website
Articles | 1325 | 03.08.2016

What will happen to dollar?

I believe that this morning plethora people were “delighted” by the news that the dollar (after stability during the last days) has raised up.

Once again, each of us think how to plan the budget, what to wait for. Let’s delve into details: what exactly have an impact on dollar exchange rate?

Thus, here are bullet points, which have an impact on the dollar exchange rate:

– Export
– Energy balance
– Paying capacity of population
– External environment
– Politics
– Administrative regulation

EXPORT, as it is known, consists of industrial producing and harvest. At first glance, it seems to be all right: during the first half of 2016, the index of industrial production has demonstrated a small growing (at the level of 2% in regard of the same period of the previous year). HOWEVER, did you notice some reforms, which are aimed at stimulating of export? Unfortunately, reforms are like Pokémon’s – it is hiding in order not to allow Ukrainian government to «catch it». Thus, the government decided to replace it by simple manipulations of statistics. It is easier to compare figures with last year for the Ministry of Economy. They do not notice decline in industrial production since April (compared to a month-to-month). Consequently, we should not expect for optimism in development of the economy. Traditionally, export of agricultural sector production will support hryvnia during the second half of the year. It will neutralize the deplorable state of affairs in the industry. I have already said about the threats of commodity export for Ukraine.

ENERGY BALANCE. Despite the statements of “talking heads” of Naftogaz, Ministry of Energy and the Cabinet of Ministers, Ukraine is still dependent on two main and the most unstable sources, namely, gas from Russia and coal from Donbas. The situation with energy supplies has been critical for a long time. I have already told about it too. Moreover, the government, of course, has not found a solution yet. Well, except for the instructions, how to do “weather shamanism” in order to obtain warm autumn and winter (such course of events took place during last 2 years).

There is no need to talk about the PAYING CAPACITY OF POPULATION. It goes for a minimum.

Therefore, influence of ordinary Ukrainians on the rare is not so significant (as it was before). Of course, the POLITICAL factor is the most unpredictable in such a set. Each of you observes, what is going on in the high offices on Bankova and Grushevskogo streets today. It does not add any optimism. As well as situation with EXTERNAL ENVIRONMENT, which was rather favourable for Ukrainian authorities during the last two years. However, nowadays, we are transferred from the “global hope” category to “global disappointment” for the world community. Ukrainian government has not demonstrated any reforms or results. We would turn a blind eye, if Europe did not have any own serious problems. If the United States would not stand on the edge of a possible dramatic change of foreign policy paradigm, which can take place in case of Trump’s victory on the elections. Such course of events makes our western partners to throw off the ballast called “Ukraine”. Consequently, there is no need to hope for the next tranche of financial aid, which is so anticipated by the NBU. It’s similar to anticipating of snow in August.

Thus, the only factor that, is really holding the hryvnia from the fall, is ADMINISTRATIVE REGULATION. The authorities have the greatest “success” in this field. The National Bank has learned to artificially constrain the growth of rate despite the all rules of economics and the market. What about market at all? Half of the banks are destroyed; the other half accurately execute all the instructions due to potential punishment. Meanwhile, ordinary Ukrainians have fallen on evil days. They cannot save or buy dollars in advance. Those, who have petty reserves, can buy dollars only in regional exchange offices, which are owned by representatives of authorities. Destruction of banks + impoverishment of people + monopolization of exchange offices – is the whole recipe of administrative “success” of the National Bank.

IN GENERAL, despite the lack of optimism in almost all factors, we should not expect for sharp leaps of exchange rate (neither rise, nor fall). If there is no force majeure (unfortunately, our country is not immuned from it), the hryvnia will be falling. By the end of the year, there is a chance of 70% that the dollar will reach UAH 27 per USD 1. If course of events follows pessimistic scenario, we should be ready for UAH 30 UAH per USD 1 by the end of the year.

It is obvious that people, who have gone over a leap from UAH 8 to 25 per USD 1, are not afraid of such devaluation anymore. If we lived through the last 2 years, we would survive today, – the majority believes.

However, will the economy survive under the conditions of postponed reforms, the war and complete administrative chaos? Will it have enough margin of safety (it does not come about its growing points) not to collapse to the bottomless depths next year?

For how long will we allow random people to perform “experiments”? It cannot be done with our economy… our country and our lives…