Until recently, the Ukrainian economy seemed somewhat isolated from the troubles many developed economies had been experiencing as a result of the global credit crunch. Such impressions were enhanced by the country's observed relative currency stability, despite the sharp one-off currency revaluation conducted by the central bank (NBU) last May, and indicators of continued robust, roughly steady and, at times, even accelerating growth.

However, as the effects of the crisis have in recent weeks reached further and further, some are already being felt across developing economies, too, with Ukraine no exception.

•Tumbling stock market. Traditionally attracting mostly speculative foreign capital rather than classic portfolio investors, the local stock market has always been prone to excessive volatility, and if this weakness was hidden during 2007, its best-performing year, it has been fully revealed this year.

•Banking sector's woes. The main problem that Ukrainian commercial banks face in connection with the global credit crunch lies in the sharply deteriorated conditions for their external borrowing. Over the past three or four years domestic banks have relied heavily on foreign loans to finance not only their credit operations at home but the repayment of loans already received from the same sources. Having accumulated large debts to foreign counterparts, banks may no longer service them from new external borrowing.

•Currency pressures. In the absence of sufficient external financing, the need to mobilize resources to pay debt drove a sharp increase in banks' demand for foreign currency available domestically. In combination with such factors as reduced inflows of foreign investment, due in part to the demise of the securities market, and falling revenues from exports of metals, unusually strong pressures were exerted on the hryvnia.

Outlook. Since the global financial crisis is more likely to prove enduring than not, Ukraine may have to grapple with its effects largely on its own. When the world economy eventually recovers, financial resources will first and foremost go into investment in high-grade assets in the developed economies, with whatever resources are left coming only afterwards into emerging markets such as Ukraine.

However, some financing cushion against the crisis appears to be readily available from the IMF: the assumed 3-10 billion dollar credit line that could be opened under a stand-by arrangement should help Ukraine cover -- as such a facility is supposed to -- a widening current account deficit. However, it is not yet clear if and when an agreement with the IMF is going to be concluded.

Until then, much if not all in the way of crisis management will continue to depend on the central bank's ability to maintain currency stability while supporting banking system liquidity at appropriate levels. Both tasks look realisable, but in the current conditions their efficient achievement may require far greater policy flexibility than has been the case to date.