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Mass protests in Ukraine trigger bankruptcy fears

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Massive demonstrations that paralyzed Ukraine's social life in the past three weeks appear to have peaked after clashes between riot police and protesters in central Kiev, leaving dozens injured.

Protesters clash with riot police during a rally to support EU integration in central Kiev November 24, 2013. Tens of thousands of supporters of Ukraine's European integration flooded central Kiev on Sunday to protest against the government's decision to drop plans to sign a landmark deal with the European Union in Vilnius on November 29 and to revive talks on ties with Russia. [Photo/China Daily]

Local experts believe the demonstrations, if they continue, may tip the country's already faltering economy into recession.

Protesting instead of working

The protests, which saw hundreds of thousands of demonstrators in cities across the country, are unlikely to go away soon.

In addition to students and retired people, a lot of workers have temporarily left their jobs to take to the streets of Kiev. Factory workers, doctors, teachers and even leaders of regional governments have shelved their professional activities to fight for the country's European future.

Prime Minister Mykola Azarov has warned the public the shutdown of business and administrative entities could affect Ukraine's economic situation.

"Any destabilization of the political situation affects primarily our economic indicators," Azarov said.

For the third consecutive week, demonstrators who erected blockades in the government district in Kiev are taking over some administrative buildings, disrupting the functioning of government agencies.

Economic expert Vladislav Starinetz believes the seizure of administrative buildings has a negative impact on the investment climate in the country.

"Investors look with great caution on the country where there is the possibility of occupancy of the presidential building, the cabinet of ministers or the central bank," Starinetz said.

Ruslan Zyplakov, a top executive at the financial institution Pivdenkombank, said the escalation of political conflict posed substantial risks to the economy.

"The main political forces should reach a compromise as soon as possible so that the economy resumes growth and banks expand lending," Zyplakov said.

Credit rating agencies also offered pessimistic assessments.

Standard & Poor's, which cut Ukraine's credit rating by one notch from B to B- in November, warned further political crisis could bring another downgrade.

Moody's suggested protests could trigger a sharp rise in demand for foreign currency, thereby worsening Ukraine's already precarious external liquidity situation.

Recession stroked by protests

Unsure about the political and economic environment in their country, Ukrainians have already begun buying foreign currency massively, which significantly reduced the rate of the local currency, the hryvnya.

Ukrainian banks on Dec. 12 offered to sell U.S. dollars at 8.23 hryvnya per dollar, compared with 8.19 hryvnya on Nov. 12.

However, the Ukrainian Central Bank has pegged the official rate at about eight to the U.S. dollar since early 2010 and continued to use its already poor foreign exchange reserves to support the official exchange rate.

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