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Ukrainian Banks Bash T-Bills Plan

September 15, 1998

KIEV, Ukraine (AP) _ Ukrainian banks criticized the government Tuesday for ordering them to convert short-term treasury bills into longer-term paper.

The move was one in a series the government has taken to stem the financial troubles that hit Ukraine because of the turmoil in Russia _ Ukraine’s key trading partner.

Ukraine’s prime minister and central bank chief met with bankers Tuesday and insisted the restructuring would be voluntary.

The order, issued last Friday, applied to all government bonds held by Ukrainian banks, worth about $3.3 billion. Commercial banks hold about one-third of the bonds and the rest is held by the central bank.

The last of the bonds mature in August 1999 but under the government’s conversion plan, the bills can now be redeemed between 2001 and 2004.

Some banks said their bonds were converted automatically without notification.

``Many banks drew funds to invest in treasury bills because they thought such an investment was reliable and guaranteed by the state,″ Yuliya Klymuk of Privat Bank, one of Ukraine’s largest, told the Interfax news agency.

The cash-strapped government, facing a lack of confidence by foreign investors and unable to draw new loans, is struggling to meet debt payments.

Ukraine’s hryvna currency has fallen against the dollar since the start of the Russian crisis. On Monday, it traded at 2.67 to the dollar, down from 2.14 in mid-August.

The U.S. bond rating agency Moody’s downgraded Ukraine’s credit rating last week, expressing fear that Ukraine may fail to meet its debt obligations as early as next year.

Ukrainian President Leonid Kuchma is meeting Boris Yeltsin on Friday outside Moscow and is expected to discuss the economic situation.

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