Ukrainian Hryvnia’s Plunge to Help Economy Recover, Dragon Says

Feb. 6 (Bloomberg) -- The Ukrainian hryvnia, the third-worst performer against the dollar last year, will help the economy rebound by bolstering exports, said Andrey Bespyatov, the head of research at Dragon Capital, Ukraine’s biggest brokerage. The hryvnia lost more than 38 percent against the dollar in 2008. It was trading at 8.1250 per dollar as of 2:07 p.m. in the Ukrainian capital Kiev today, compared with 7.7450 yesterday. “On the one hand, the hryvnia’s depreciation is bad for some sectors of economy,” Bespyatov said in an interview. “But on the other hand, it gives opportunities for others, and all in all, Ukraine should benefit from it.”Ukraine’s economy and other emerging markets are being shaken by the global financial crisis, which caused a lack of credit and currencies around eastern Europe to weaken. The economy, which expanded an average 7 percent between 2000 and 2007, will probably shrink 5 percent this year, the International Monetary Fund forecast. Exports account for 56 percent of Ukraine’s gross domestic product, according to the Economy Ministry.

Dragon Capital expects the contraction to bottom out by June, when the economy will begin recovering, said Bespyatov. The contraction will probably be 8 percent in the third quarter, compared with an estimated 12 percent drop in the second quarter, Bespyatov said. Dragon forecasts the economy will shrink 6 percent in 2009 and grow 4 percent in 2010.

Export-Driven Recovery

The recovery will be driven by export-oriented industries, primarily steel and chemicals, Bespyatov said. “We already see some recovery in the steel sector, which started exports to China, India, North Africa and Middle East,” said Bespyatov.

Agriculture companies, including sunflower-oil exporters, are also benefiting from the hryvnia’s decline, said Bespyatov. Ukraine, one of the world’s top three sunflower seed and oil exporters, has had a record harvest of sunflower seeds in 2008 because of favorable weather, according to the state statistics office. The country reaped 6.52 million metric tons of sunflower seeds last year, compared with 4.174 million a year ago. “We have an advantage over competitors because of the weaker currency,” said Bespyatov. “The companies are getting more profit if their costs are mainly in hryvnia and this is a good stimulus for development.”

Weak Hryvnia

The cheaper hryvnia will also help Ukraine curb imports, which surged 38.4 percent to $83.6 billion in 2008, Bespyatov said. “Ukraine has depended on imports in the past several years, which ballooned the current-account deficit and the trade gap,” he said. “Such a situation would have been negative in the long- term perspective for the country.”

Exports outstripped imports in January, deputy central bank Governor Anatoliy Shapovalov said on Jan. 28. While the hryvnia will remain volatile in the first six months, it will probably trade at 8.5 to the dollar at the end of the year. A stable hryvnia will draw investors’ interest to Ukrainian Eurobonds, said Bespyatov.

Ukraine is the least creditworthy of economies worldwide, as measured by the cost of credit-default swaps that protect bondholders against default. Contracts on Ukraine’s debt are traded at 3263.20 basis points, compared with 2687.90 for Argentina and 2612.80 for Venezuela, according prices from CMA Datavision in London.

Bespyatov doesn’t expect Ukraine to default as its government debt is around 11 percent of GDP. He recommends investors buy government-offered Eurobonds to avoid hryvnia risks.