The blow to the economy: the military situation drives up prices and destroys the hryvnia

Удар по экономике: военное положение взвинчивает цены и рушит курс гривны

The demand in the foreign exchange market is overvalued until the abolition of martial law, experts predict. They expect growth of consumer prices, the rise in price of petrol, coal, electricity, cuts in social expenditures. Note that migration will rise, investment will fall and the consequences will be long.

“A powerful and coordinated blow”

After the imposition of martial law in several regions of Ukraine, the selling rate of cash dollar in exchange offices of the Kiev banks rose to almost 29 hryvnia, reported the media. But trading on the Interbank market were carried out with a dollar to 27.75-27,80 UAH. There the value of the dollar increased by only 10 cents in the purchase and 20 cents in the sale.

The national Bank explained the variation of the “situational and psychological factors.” However, the rate of the most liquid shares of the Ukrainian companies on foreign exchanges also showed a decline. Political analyst Volodymyr Will stated the negative consequences of the imposition of martial law on the economy, financial system and banks.

“Those who voted for martial law, inflicted, as they like to say, “strong and coordinated impact” on the confidence of citizens and business to the banks. Very slowly that trust was restored, began to grow the deposits of citizens and business. And then… martial law even in 10 regions triggers the distrust of the banking and financial system throughout Ukraine”, – he wrote in Facebook.

Recall that after the capture of the Russian naval force of three ships of the Ukrainian military, the national security Council and President Poroshenko proposed to introduce martial law in Ukraine. On 26 November the Verkhovna Rada at an extraordinary meeting approved that decision. Martial law will operate for 30 days from November 26 in the territory of the ten regions.

The President of the Center crisis research Jaroslav Zhalilo predicts that the dollar will be inflated throughout the period of martial law.

“I believe that the situation will not improve before the lifting of martial law, the demand for cash currency market is overvalued,” he says. Among the factors he calls not only the speculative demand. There is a long lasting factor is the expectations of the business, which generates supply on the currency market. Exporters to return foreign currency to the country in these circumstances will wait.

“Now begins a period when traditionally there is a delay with the return of the currency in anticipation of when is the peak value of the rate to the currency reset and get more benefits. Believe that the current risks can be offset. Normally, this dumping occurred in mid-late January. Now, perhaps business will stop this dump”, – reasoned the expert.

According to the forecast Zhalilo, exporters may delay the inflow of foreign currency on the Interbank market until February. “Longer than until the end of February, it will delay, as you have to pay taxes,” he explained.

But the Director of the Institute of economy of Ukraine Oleksandr Goncharov just predicts the reduction of tax revenues. He expects a “powerful wave” of proceedings in the chamber of Commerce between the parties contractual relationship.

After all, the parties are relieved from responsibility for complete or partial failure to fulfill obligations under the agreement where such failure has occurred for reasons that are beyond the parties ‘ control (force majeure), including the imposition of martial law, nationalization, expropriation, natural disasters, etc. “the Certificate of the chamber of Commerce of Ukraine on force majeure will delay financial obligations to counterparties, to defer payment of the tax debt, the filing of tax returns and execution of contract,” he says.

The fuel will pull prices up

The government reassures citizens. Prime Minister Volodymyr Groysman does not see any reason to prolong martial law at the end of December, therefore called on Ukrainians “to live a normal life.” Deputy Prime Minister Pavlo Rozenko said that the introduction in Ukraine of martial law will not affect the payment of pensions, wages and social security payments. And the Ministry of agrarian policy says that the 30-day military situation will not lead to food shortage, since the supply of products exceeds demand and prices will not be.

First Deputy head of the Ministry of agriculture Maxim Martyniuk said: “Production is more than enough for all basic categories, and it is available at any time. In the case of speculative price increases, we have a wide range of instruments for extinguishing”.

However, experts note that the prices for all goods and services depend on the cost of fuel. Expert energy market Yuri Korolchuk says that Ukraine is 80% dependent on imported gasoline, diesel fuel and LPG (propane-butane). “From the Russian fuel or coming from Belarus, which is made from Russian oil, and is controlled by Russia it is 60%”, – he wrote in Facebook.

Experts predict the shortage of electricity in connection with the escalation of the conflict. According to experts, the introduction of martial law will inevitably lead to the termination of coal supply from Russia and, ultimately, to the shortage of electricity.

“Stocks in warehouses TPP today — tolerable at least. To replace coal from Russia is nothing. Only ended the crisis around Lugansk thermal power plant, which switched from coal to gas. NPP is not extended. Therefore, the failure in the supply of coal will lead to rolling blackouts. In the system and now I have a stable deficit of 1.5 GW — so much consumed in three regions of Ukraine”, – he described the situation.

In addition, the military situation put down to a question of stable work of nuclear power plants, and American fuel don’t help. “Nuclear fuel of 80% comes from Russia. Half of the fact that Westinghouse sells Ukraine (fuel assemblies), goes to the warehouse to use it as a backup will not work”, – says Yuri Korolchuk.

Executive Director of the International Fund blazer Oleg Ustenko expects to reduce all programmes to pobranie goal of health care, education, pensions, minimum wages, etc.

The expert believes that the adopted last week, the state budget for 2019 is useless. “To get the economy should be the maximum. And the defense also should get the maximum. Much more than what is now included in the draft state budget for 2019 — around 5% of GDP on the sector of security and defense. The budget of “night vigil”, which with such difficulty was taken in the night last week, becoming useless. The concept of the budget should be radically changed”, – reasoned Ustenko.

He noted that investors do not come in cases of martial law, therefore, no forecast of $ 2 billion in foreign direct investment will be. Pressure on migratory flows will increase further, which will put even more difficult situation of the pension Fund and the budget in General. The structure of GDP will begin to change dramatically in the direction of militarization. “After the end of martial law would require enormous resources to recalibrate to a peaceful life”, – says Oleg Ustenko.

Political analyst Volodymyr Will believes that because of the obvious negative consequences of martial law can cancel in advance. But his colleague Andrei Zolotarev sure that this will not happen. On the contrary, the government, using martial law, will attempt to exert pressure on the business. “On the eve of the election Poroshenko will put pressure on business, which supports the opposition. Try using administrative and police tools to create unbearable conditions”, – said the analyst.

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