KIEV, Dec. 26 – Ukraine will “gradually” introduce a floating exchange rate allowing the hryvnia to lose or to gain value considerably in forex trading as required by the International Monetary Fund, Economy Minister Ihor Prasolov said.

Prasolov, who also holds the position as the head of the National Bank of Ukraine Council, a strategic policy body, said the government will try to persuade the IMF next month to resume lending.

“The gradual transition to the flexible setting of the exchange rate is anticipated in the directives from the IMF,” Prasolov said in an interview published in the government’s official newspaper Uriadoviy Kurier. “The NBU is strictly adhering to its commitments.”

The forex market has been for years strictly controlled by the NBU, which used its interventions to keep the exchange rate stable. However, weakening exports increased downward pressure on the hryvnia over the past six months, forcing the NBU to sell its hard currency reserves to prop up the exchange rate.

The NBU managed to persuade lawmakers to approve a bill that forces exporters to sell a half of their hard currency earning on the forex market, a move that had helped to somewhat easy demand for hard currency.

“A positive effect from the introduction of the bill is undeniable,” Prasolov said. “The market began to regularly receive hard currency. This regulation contributed to changing attitudes in the population.”

The NBU also suggested to slap a 15% tax on selling of hard currency by individuals, but lawmakers, even the ruling Regions Party had rejected to support it.

The NBU’s future forex policy was in spotlight after Serhiy Arbuzov, the governor of the NBU, was appointed by President Viktor Yanukovych as the first deputy prime minister on Monday.

Ihor Sorkin, the first deputy governor of the NBU, was appointed as acting governor, according to people familiar with the situation. Sorkin, who comes from Donetsk, Yanukovych’s stronghold, is Arbuzov’s ally.

Yanukovych said recently he will soon appoint the governor, but he did not elaborate.

Prasolov said the exchange rate was kept mostly stable for the past three years with the hryvnia deviating by not more than 2% from a target set in a memorandum with the IMF.

He also insisted that the switch to the floating exchange rate should be gradual and without major swinging.

“There are bad examples when emerging market economies were introducing flexible exchange rate that had hurt their economies,” Prasolov said. “This had taken place in Indonesia, Brazil, Argentina, when the national currency was losing up to 30% of its value within a week.”

“This makes nothing good either to the economy or to the average people,” Prasolov said.

An IMF team is expected to arrive in Ukraine in January and the government will seek to persuade the Fund to resume cooperation with Ukraine that was suspended for more than 2 years on policy disagreements.

“It is very important that we get positive signals,” Prasolov said. “We are confident that Ukraine will successfully conduct negotiations and will sign a new agreement.” (tl/ez)