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. Last Updated: 07/27/2016

Reopening Set for Kiev Exchange

KIEV -- Ukraine's new administration announced plans Tuesday to reopen the Kiev currency exchange and ease state control over markets, but economists called the moves half-hearted.


A decree signed by President Leonid Kuchma aims to bring the overvalued official foreign-exchange rate of Ukraine's currency, the karbovanets, gradually in line with the much lower market rate by the end of the year.


It also ordered the Ukrainian Interbank Currency Exchange to resume trading on October 1. The bourse was closed last November after the government accused it of fueling inflation.


But economists said the decree fell short of expectations, and they criticized its vague wording and long deadlines.


"I can't imagine that the International Monetary Fund and other institutions will be pleased with this. It's quite different from what Kuchma and his advisers had led us to believe," said one Western diplomat. "This is a recipe for further drift. They've essentially maintained the same system, perhaps knocking off some of the rough edges."


Kuchma's administration is under pressure to right the economy to receive $4 billion in aid promised by Western economic institutions provided Ukraine starts serious reforms. An IMF mission is in Kiev to work on an economic stabilization program with the government.


But a conservative parliament and government are pushing for more centralized control of the economy.


"This is not a simple issue and the decree is a compromise. I am certain we will be criticized by both the left and the right," Kuchma's top economic adviser Anatoly Halchynsky told reporters.


"There were serious differences on this. We will have to work with the parliament on this."


Halchynsky said the government hoped the reopening of the exchange would open the door to a Western-backed currency stabilization fund. The sooner such a fund was set up, he said, the sooner Ukraine would have real market exchange rates.


Ukraine has two exchange rates -- an official rate used for the sale of 50 percent of companies' hard-currency earnings, and a second rate set at weekly Central Bank auctions.


Under the terms of the decree, the official rate will be based on a series of factors, including inflation, monetary creation and the trade balance. There is no direct link to the market rate.