Summary

For the last years Ukraine has experienced macroeconomic misbalances caused with inefficiency of economy and uncompetitive choices in exchange rate policy. A 2014-2015 crisis highlighted all sides of country`s disadvantages in the international community. It stems from institutional aspects, like absence of monetary, financial discipline, corruption of authorities to economic and currency policy, like exchange rate inflexibility, current account deficits. According to the Ukraine-IMF Memorandums of Economic and Financial Policies, Ukraine take steps forward exchange rate flexibility and inflation targeting. Although IMF’s decisions are market-determined and aimed to financial stabilization through flexible devaluation, monetary restriction, inflation managing, it is hard to consider that this program achieved an undeniable success in Ukraine. Following this issue, the article evaluates the problems of the Ukraine-IMF collaboration in currency and exchange rate policy transformation.

The analysis of the Ukraine-IMF collaboration during 1994-2016 demonstrates an intensive focus of the Fund on exchange rate regime flexibility. It was found that Ukraine's transition to a flexible exchange rate regime depends on the volume of resources provided by the IMF as well as on Ukraine’s gross external debt-to-GDP ratio growth. For an example, during the periods of Ukraine’s stability and growth in 2002-2007, and 2011-2013 the Ukraine-IMF cooperation was largely in the field of technical consultations and Ukraine provided fixed exchange rate policy. While during the periods of economic and financial crises of 1995-2001, 2008-2010, and 2014-2016 Ukraine implemented exchange rate regimes like crawling peg, managed arrangements, floating respectively.

The empirical evidences present mostly negative effect of compliance of floating exchange rate regime in Ukraine in 2014-2016. This was due to vast devaluation of hryvnia, and it was reflected in production decrease. Macroeconomic conditions, according to which the decision on exchange rate flexibility might be accepted, were analyzed. The most important are low level of technological export and confidence of people and business to the national currency, absence of reliable investment instruments and appropriate monetary institutional framework. It was found that National Bank of Ukraine (NBU) has to provide an appropriate level of foreign currency to avoid large devaluation of hryvnia. Thus, it seemed controversial for the NBU, collaborating with the IMF, to allow the free withdrawal of currency from the country. Another issue concerning low effectiveness of floating exchange rate regime implementation is low level of monetary discipline in the system of relations between NBU and some banks when a huge amount of refinancing from NBU was used for buying foreign currency instead of investment into real sector. This caused a devaluation pressure on exchange rate of hryvnia.

The instruments of inflation targeting, used by the central bank, demonstrates some limits. It refers to the fact that inflation rate mostly depends on devaluation. Thus, the low inflation rate couldn’t be a strong guarantee against exchange rate fluctuations. A discount rate policy has limited effect on deposit rate of the banks. It was proven that monetary expansion has positive effect on GDP growth.

Ukraine should develop a strategy of cooperation with the IMF in the field of exchange rate policy. It was concluded that in medium term the floating exchange rate of the hryvnia would have more consequences that are negative. It is necessary to expand the instruments of monetary regulation, using monetary expansion or regime of pegging of the hryvnia to euro. It is pointed that the cooperation program should focus not only on increasing exports but also on its structural transformation and increase of competitiveness. It was highlighted the need for investors protection improving and capital withdrawal toughening.