Monday, November 21 the National Bank of Ukraine's overnight refinance rate reached 70%. Tuesday, November 22 the rate hit 90%. The euro
crisis has reached Ukraine. Last week UniCredit, a major Italian financial institution, announced that it took a 10 billion Euro write off of assets to
account for losses in Greece, Ukraine and Russia. 6 billion Euro was to write off losses in Greek government bonds, and 4 billion was to fully write
off its investment in Ukraine and Russia.

The bad news from Italy spread to Austria this week. On Monday the Austrian Central Bank instructed Raiffaisen International Bank, Erste Bank
and Austria Bank, a subsidiary of UniCredit, that they can no longer provide cross border loans to their operations in Ukraine. Further Vienna
instructed the banks that they and their subsidiaries were to adopt by January 1 Basel III rules requiring them to raise reserves from 5% to 8%.
Lastly it required that the banks lower lending through their subsidiaries in Ukraine from 150% of deposits to 110%.

Austria's limitation will also apply to subsidiaries operating in Poland and Russia. For Russia this will not have a significant impact unless other
European countries follow suit. However in Poland where the majority of the financial system is owned by non-Polish European banks the effect will
be a decrease in liquidity.

Ukraine's agricultural sector which has focused on the Warsaw Stock Exchange for equity may find it harder to find investors there as liquidity dries
up in Poland. Those companies which haven't been able to undertake an IPO will probably now stay away from Poland. But costs are higher in
other European equity markets and interest is lower. This means companies will need to look to Ukraine's financial sector for operational and
investment funds. The problem is that Ukraine's banks have not fully recovered from the 2008 crisis, and now that the major investor in Ukraine's
financial sector is limiting credit, getting money in Ukraine will become even more difficult.

We now are revising our lending forecast. We had predicted that Ukraine credit to the agricultural sector would be between $1 to $1.5 billion in
2012. We are now revising that forecast to $600 to $800 million. We had expected that interest rates would remain stable. We now are forecasting
that interest rates may double from the current 20% to 30% depending on the client, to as high as 40% to 50%.

Based on our new forecasts we expect input purchases to fall and correspondingly production to fall. Further, we expect agricultural asset prices to
continue falling and this will strengthen the opportunity of well-established holdings with access to external capital to continue expanding. Lastly we
expect that Ukraine may allow a significant devaluation and this will impact revenues at companies producing for the domestic market. As a result
Ukraine's agro holdings that derive significant income from domestic sales will see declining revenues in a devalued currency and may encounter
losses and problems in paying obligations on Eurobonds.
 

UAIndex