What 2014 and 2015 taught about balance sheets
The second currency shock in six years destroyed companies that had survived the first one, and the reason was almost always the same line on the balance sheet.
Between 2008 and 2015 Ukrainian companies went through two severe currency devaluations. The firms that failed in the second one had usually learned nothing from the first, and the failure mechanism is worth stating plainly because it is entirely avoidable.
The mechanism
Currency mismatch. A company earning hryvnia and owing dollars is short the dollar, whether or not it thinks of itself as having a currency position. When the rate moves, the debt grows in the currency the company actually earns, and it grows by the full extent of the devaluation overnight.
The same applies to a lease denominated in foreign currency, to imported inventory bought on credit, and to a supply contract priced in euro with payment in local currency ninety days later.
Why companies did it anyway
Because foreign currency loans carried much lower interest rates, and the saving was visible every month while the risk was invisible until it was not.
That is not stupidity; it is a rational response to a rate differential by someone who believed the exchange rate would hold, and the state had been defending it, which made the belief reasonable.
What should have changed permanently
Match the currency of debt to the currency of revenue. An exporter earning dollars can borrow dollars; a retailer earning hryvnia cannot, at any interest rate.
Price contracts in the currency of cost, or index them explicitly.
Hold a working capital buffer sized for a devaluation, not for an ordinary quarter.
Whether it did change
Partly. Foreign currency lending to unhedged borrowers is now restricted, which removed the temptation by regulation rather than by discipline. The firms that survived 2015 do plan this way, and they have been noticeably steadier since.
The same line: debt in foreign currency, income in local. Most of the companies that survived 2008 went under at the same point in 2014, because in between they had not made the lesson permanent. We wrote ours down the second time — today none of my companies carries debt in a currency its revenue does not match. What lasts is not the lesson but the procedure that turns it into a rule.
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