Ukraine Market Report — Q2 2020
A banking law adopted in May protected the 2015–2016 clean-up from reversal, and a new IMF programme followed in June. The sequence shows what conditionality can and cannot buy.
Overview
Legislation adopted in May established that banks resolved or nationalised under the post-2014 framework could not be returned to former owners, with compensation claims limited to damages.
A new IMF stand-by arrangement was agreed in June.
What the banking law protected
The clean-up carried out between 2015 and 2016 had removed a large number of institutions and taken the largest into state ownership. Legal challenges by former owners were proceeding, and a successful reversal would have unwound the central financial reform of the period.
The law made reversal legally impossible and converted any claim into a monetary one.
This is worth noting as a category of policy that receives little attention: legislation whose purpose is to make an earlier reform irreversible.
A reform that can be undone by a court decision is not a settled framework, it is a temporary arrangement. Making it irreversible is a separate act from making it, and in Ukraine's case the second act came four years after the first and was itself a condition of external financing.
For a company assessing regulatory risk in any market, the useful question is not only whether a framework exists but whether it can be reversed and by whom.
Macro position
Output contracting on quarantine restrictions. Currency stable after the first-quarter movement. Inflation low. Reserves supported by the new programme.
Sectors
Agriculture — proceeding normally; a good harvest in prospect.
IT services — growing through the pandemic as global demand for remote technical services rose.
Retail, hospitality, transport — bearing the contraction.
Manufacturing — disrupted by supply chains and demand rather than by domestic restrictions.
What the quarter settled
That the financial reforms of 2015 and 2016 had been made permanent, and that this required a separate legislative act taken under external pressure four years later.
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