Among the most vulnerable states, it seems, are some of the young democracies born after the fall of the Soviet empire, which have seen their economies race ahead under democratic rule and capitalism — only to run smack into a global financial crisis.
Facing bank failures, turbulent markets and rapid inflation, Ukraine`s politically fractured government imposed a series of emergency measures this week to shore up the economy.
At a news conference Tuesday, Prime Minister Yulia Tymoshenko dodged the question of whether Ukraine was seeking help from the International Monetary Fund, which would confirm fears about the state of Ukraine`s economy. Instead, she offered broad assurances that there was no need for panic.
"The Ukrainian government is doing everything possible and impossible so that the impact of the global crisis on Ukrainian life, the Ukrainian economy is minimized," Tymoshenko said.
While the world`s major economies snap up banks and bail out brokers, many modest-sized countries don`t have such deep pockets.
Hungary`s currency has skidded 20 percent. Stocks have fallen in Poland. In Estonia, real estate prices have dropped 40 percent.
Iceland, where stocks fell almost 70 percent Tuesday before rebounding, is trying to negotiate a $5.5 billion loan from Russia.
Ukraine, which has been locked in a political struggle with Moscow since it elected a pro-Western government in 2004, certainly can`t go begging to the Kremlin.
Ukraine`s inflation rate hit 31 percent in May compared with the same month the previous year, higher than any other country except Zimbabwe and Venezuela. The government scrambled and brought it down to a somewhat less shocking 16 percent rate as of September.
Faced with global economic uncertainty, depositors in Ukraine began frantically converting their local currency into dollars after the hryvna (pronounced HRIV-nyah`) dipped by almost 20 percent, before clawing back some lost ground.
Analysts said the fall was due to investors pulling money out of Ukraine and many other emerging markets. The rate plunge stripped the banking system of $1.3 billion in the first two weeks of October.
Some analysts say that the so-called emerging markets of the world`s vibrant young capitalist economies will bounce back quickly, because many are still shaking off the effects of decades of totalitarian rule.
Even so, many seem destined to ride an economic roller coaster in the short term, as real estate bubbles burst, banks go bust and consumer spending tanks.
Anders Aslund, an economic analyst, wrote in July that Ukraine`s economic plight was not as bad as that of Russia in 1998, which plunged the country into a deep, prolonged recession.
Ukraine`s state budget, he pointed out, had a healthy surplus, its public foreign debt was small and its national bank was flush with foreign currency reserves worth $36 billion.
But he still saw Ukraine facing "catastrophic" consequences if it failed to get inflation under control — and predicted that real estate prices could fall by half, while half of all banks might go bankrupt.
The country`s two leading magazines came out with nearly identical covers this week — Korrespondent showing a one-hryvna bank note going up in flames, and Focus displaying a one-hryvna coin melting down.
"Money is melting," warned Focus. "Hello crisis," Korrespondent announced.
Tymoshenko announced Tuesday that the government was freezing transportation costs, lowering natural gas prices and planning to cap electricity costs for the steel and chemical industries, an effort to boost the core sectors of the national economy.
The government`s measures follow a central bank freeze of selected retail accounts across the country, limits on loans and other measures to stabilize the currency. "It looks like the National Bank is in control of the situation," said Volodymyr Dinul, an analyst with Renaissance Capital. "Let us hope that everything will calm down sooner rather than later."
One key to the financial problems in Ukraine, experts say, is a falling demand for steel, the country`s key export commodity. Another factor is Ukrainians` mistrust of banks, founded on their painful experience with the hyperinflation following the 1991 collapse of the Soviet Union, which wiped out their savings.
Tymoshenko`s government sought to compensate some of the losses from that long-ago crisis this year, but that proposal was stalled by her political feud with President Viktor Yushchenko.
One of the triggers for the current crisis was the trouble at two major banks, the sixth-largest Prominvest, which has been taken over by the central bank, and the seventh-largest Nadra, which has survived thanks to a $300 million central bank loan.
Fitch Ratings, a global credit rating agency, on Monday downgraded Nadra and noted that Ukrainian banks faced "challenging times" as near-term risks increased considerably.
Ukraine`s main stock index, PFTS, closed with a minuscule 0.8 percent gain Tuesday, following the positive global trend and reacting to the government efforts. The stock market has lost nearly 70 percent since the beginning of this year, after a record 130 percent rise in 2007.
Independent financial analyst Geoff Smith said an aid package adopted by the G-7 leaders bodes well for Ukrainian banks, since European banks had stakes in nearly half of local banks.
"After the G-7 rescue plan, I am cautiously optimistic the Ukrainian banking system will in general withstand the crisis," said Smith.
Others remained concerned, saying the central bank`s drastic measures showed the banking sector was in deep trouble.
The crisis has been aggravated by Ukraine`s political deadlock, and the current crisis over control of parliament. That crisis deepened Tuesday, after Tymoshenko refused to heed Yushchenko`s order and release government money to pay for early parliamentary elections he called for Dec. 7.
Tymoshenko, seen as Yushchenko`s rival in the 2010 presidential vote, is battling to retain her office and avoid a third parliamentary ballot in three years. Yushchenko is determined to push through with the election and has abolished a court that froze election preparations.AP
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