The National Bank of Ukraine can be deprived of an effective foreign exchange rate adjustment tool, – Nickolas Likhachov

The legislators ran out of steam while waiting for the foreign exchange market liberalization as announced by the National Bank of Ukraine. They have proposed to set a ceiling amount of foreign currency proceeds brought into Ukraine that are subject to compulsory sale at 50%.

Nickolas Likhachov, a Counsel at Spenser & Kauffmann, Attorneys at Law, about relevant draft law N 4866 on Liberalization of Foreign Currency Transactions to Promote Investments and Exports in his comments for Delovaya Stolitsa, a periodical.

He thinks that these provisions could prevent the regulatory authority from responding in an effective and timely manner to possible market disruptions since the procedure of introducing or lifting restrictions could take the regulator few days as contrasted with time-consuming process of making amendments to the legislation.

‘Having provided in the law for a 50% ceiling amount of foreign currency that is subject to compulsory sale, the legislators will prevent the National Bank of Ukraine from promptly responding to possible force-majeure circumstances’, – N Likhachov said. – If this law is adopted, then, in case of further market disruptions, the National Bank of Ukraine will be deprived of an effective (albeit unpleasant for exporters) tool of adjusting balance of payments and foreign currency exchange rates in exchange offices’.

When answering to a question about whether as a result of the introduction of the current high ceiling amount of foreign currency that is subject to compulsory sale (75%) the exporters have no choice but optimize the tax burden and ‘hide’ foreign currency in offshore zones, N. Likhachov said that the compulsory sale of foreign currency proceeds is neither last nor least of the reasons because of which the exporters tend to avoid bringing foreign currency into Ukraine. ‘In this case we have a number of factors such as foreign exchange rate fluctuations, a desire to evade taxes, impossibility to refund VAT to exporters without using quasi-legal schemes’, – he said.