ABSTRACT
This chapter argues that both inflation and the real economy—its production levels and the pace of restructuring—have responded predictably to the changes in policy regime. In the eight years between independence and its second free presidential election, Ukraine has experienced several phases of economic policy making. Stabilization without liberalization was already unraveling as the political forces that finally came to shape Ukraine’s first comprehensive reform program came together. The currency reform entailed the long-delayed replacement of the karbovanets with Ukraine’s new national money, the hryvnia. Given the National Bank of Ukraine strict limitation on direct financing of government, the rising deficit led to increasing sales of T-bills, whose low creditworthiness had to be compensated for with high interest rates. In August 1999, Moody’s rating agency cited Ukraine as one of the three countries in the world most likely to default on its sovereign debt.
