Ukraine's currency plunges on uncertainty, govt seeks IMF help

KIEV (AFP) - Ukraine's currency plunged seven per cent to a record low on Thursday on deepening uncertainty fuelled by Russian military exercises and pro-Kremlin gunmen grabbing government buildings in the separatist-minded Crimean peninsula.

The hryvnia was trading for more than 11 to the US dollar during the day, having smashed through the technical barrier of 10 to the dollar on Wednesday.

It has lost nearly 20 per cent of its value since the beginning of this year.

The plummet underlined the challenges facing Ukraine as it grapples with turmoil sparked by the toppling last week of president Viktor Yanukovych.

Default on its debt is a real possibility. Private and public debt tops US$66 billion (S$84 billion). The country owes US$13 billion in state debt payments this year - a massive sum in a country where central bank reserves have shrunk to less than US$18 billion.

The head of the International Monetary Fund, Ms Christine Lagarde, said Kiev had appealed for help to deal with its financial crisis. An IMF fact-finding team will go to Ukraine "in the coming days," she said.

While an interim government drawn from opposition ranks has taken charge pending early May 25 elections, Russia has created uncertainty by ordering snap military drills near the Ukrainian border.

Pro-Russian gunmen on Thursday also seized government buildings in Crimea.

"There is a serious danger," said Mr Andreas Umland, a Kiev-based political analyst at Kyiv-Mohyla Academy. "There are separatist tendencies, there is Russian interest in the region and there are clashes." NATO leader Anders Fogh Rasmussen pleaded with Moscow "not to take any action that can escalate tension or create misunderstanding".

The concerns are spilling over into Russia's ruble, which was already under pressure from a general sell-off of emerging market currencies.

The ruble was just above its record low hit on Wednesday against the euro, trading on Thursday at 49.90 rubles to the European single currency.

It was at a five-year low against the dollar at 36.25 rubles to the greenback.

Ukraine is suffering badly from Moscow's decision to freeze the US$15-billion bailout package Russian President Vladimir Putin promised to Yanukovych after delivering only a US$3 billion tranche in December that had long been used up.

Kiev has requested as much as US$35 billion in Western help over the next two years, but there was no indication aid of that scale that would be forthcoming.

US Secretary of State John Kerry has promised quick delivery of US$1 billion in loan guarantees "with some other pieces" to follow.

Mr Kerry said the European Union was looking at loan guarantees worth about US$1.5 billion for Ukraine.

"Traders in Europe continue to worry over tensions surrounding Ukraine," said ETX Xapital analyst Ishaq Siddiqi.

"It's difficult to gauge the immediate impact of recent developments in Ukraine on the economy, but historical evidence from similar instances of unrest and political transition suggests that GDP growth rates can weaken by between 4 percentage points and 8 percentage points in the following year," the firm Capital Economics said.

"In Ukraine's case, this would imply a pretty severe recession."