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Local black swan, rather than the coronavirus, to push the Ukrainian economy into recession

Author : Olexandr Honcharov

Source : 112 Ukraine

The decrease in Ukraine’s GDP has just begun, its consequences could be disastrous for our young country
17:16, 10 March 2020

Open source

The Ministry of Economic Development openly admitted: in January 2020, Ukraine's GDP fell by 0.5%. Worst of all, almost all types of economic activity that shape the dynamics of the composite index of production of goods and services for the main types of economic activity, except for construction and domestic trade, showed a sharp decline in production.

What does it mean? The fact that it’s not coronavirus as much as incompetence and lack of professionalism, first of all, Cabinet of Ministers of Oleksiy Honcharuk, and now, most likely, the government of the new Prime Minister Denys Shmygal (who simultaneously works as an expert on various television talk shows), is a full-fledged “black swan”, which will push the Ukrainian economy into recession.

Their words sound beautifully on TV screens because the secret of Honcharuk and Shmygal is simple: if you do not know where to go, then do it more confidently than everyone else. But, unfortunately, we will never hear concrete judgments from them about business cycles and leading indicators of a recession in the real sector of the economy.

They will never tell TV-audience that recently the Ministry of Finance, with the support of the National Bank, that is, due to the NBU's double-digit bank rate, has actively vacuumed speculative capital both inside the country and on the world markets. In the conditions of a chronic trade deficit and a budget deficit! Thus they got the GDP collapse!

Unfortunately, but it seems that the country's economy will continue to fall: the National Bank of Ukraine is not ready to lower the rate and at least somehow respond to coronavirus as the US Federal Reserve System (their central bank) is doing. Well, yes, in other and much more developed countries, money is getting cheaper, but not here in Ukraine. For Ukrainian business and ordinary people, the financial authorities still maintain a very high price: the National Bank's bank rate is 11% of yearly bank interest! We see the limit of dullness and cynicism.

And with the first statements of the new Prime Minister Denys Shmygal, I have a feeling that he will not oppose speculative capital and will not be able to drive currency speculators with top officials playing into their hands.

Indeed, on March 6, insider information came that the NBU board was going to resign. We will see. Well yes, as they say, like the goals, like is the performance. I think for a long time these insidious decisions of the NBU and the Ministry of Finance will come to us, which will leave many Ukrainians without pants.

Although we were all assured that Ukraine will end the era of poverty in 2020. I'd love that. Moreover, the fight against poverty in the economy is called investment in human capital. If so, then let's turn to the state budget-2020, which provides for a $190 of the minimum wage in Ukraine since January 1, 2020, and $85 of a living wage for 1 person per month.

And how is it possible to fights against poverty with these indicators? Finally, when will common sense return to power? And most importantly, what to do? I suggest, firstly, the Cabinet of Ministers of Denys Shmygal to take a course so that absolutely all Ukrainians, including pensioners, the disabled and students, have an income of at least the minimum wage (for Ukraine this figure, although serious, is not supernatural at all).

Secondly, to introduce a single social benefit - at least $80, that is, to introduce one large payment instead of various subsidies. Thus, it will be easier for people in need to understand how much the state should pay them.

And, of course, Ukrainians in their country should stop feeling themselves unwanted on this feast of life of top officials and heads of state corporations. Especially ordinary state employees (teachers, doctors, military personnel, etc.). It is time for them to start receiving enough money from the state.

In addition, the social strategy of the Ukrainian government may bring significant economic benefits, since measures aimed at eradicating poverty will lead to increased labor productivity, and accordingly to economic growth. Of course, it is immediately difficult for top officials to understand, because something significant must be achieved with your own work, knowledge and experience. No way round it!

This direction of the state’s economic policy is especially important for us, since Ukraine is among the 18 countries of the world whose economies fell during the period from 1990 to 2017, showing the 5th result from the end, as said by the representative of the International Monetary Fund in Ukraine Yosta Lyungman. According to him, the economy of our country needs to grow by 6% per year for 20 years in a row to reach the level of Poland.

And, frankly speaking, six years have passed since the second Maidan, and until now, from Ukroboronprom to Ukrzaliznytsia, Lithuanians, Pashtuns, Turks, Georgians, Americans, Germans, Swedes, Poles, and others have stood and are standing at the helm of state corporations and many branch ministries, and Ukrainians with a light hand Petro Poroshenko and Arseniy Yatsenyuk became the strangers at this celebration of life.

Even the US president, the head of the first economy in the world, can envy fabulous salaries and bonuses to foreign workers in Ukraine. Well, with our policies, foreign ministers and top managers of Ukrainian state holdings were forced to hunch back to distant foreign countries for several hundred euros, so we have a real impoverishment of the population.

Did they fight for it on the Maidan? Now everyone began to understand: waiting for someone to come from abroad and show us the right path is the worst and most dangerous.

Is there a way out of this difficult situation? What exactly needs to be done?

The first one. It is necessary to adopt the laws of Ukraine on introducing the cumulative level of the pension system, as well as on professional pension systems and on early payment of pensions (this is 30% of all current payments by the Pension Fund of Ukraine, which are not secured by contributions).

The second one. How to speed up this process? Perhaps it is time to pass a law that the country's budget will become an exhibit to the state pension fund? I'm not kidding. Now our pensioners are far from laughing. As well as another category of our people have no desire to laugh - those who took a mortgage. And although President Volodymyr Zelensky said that reducing the mortgage rate to 10% per annum is a realistic task, however, the leaders of the National Bank do not care about what they decided in the Office of the President. The first deputy head of the National Bank of Ukraine, Ekaterina Rozhkova, firmly stated that in the current year 2020, despite assurances from the president, hryvnia mortgages will be at 15% of mortgage annum rate (and even this figure is a big question).

And it's is nearly impossible to prove anything to the National Bank. Especially that none of the bankers are interested in the opinion of members of the Confederation of Builders of Ukraine about a possible reduction of mortgage rates up to 10% from the current 20-24% per annum (!), which would allow increasing housing construction by 30-40% this year.

So, who at the National Bank of Ukraine cares about the fact that the mortgage size in Denmark is 0%, in Germany is 1.5-2%, in the Czech Republic is 2.9%, in the UK is 3%, and in Poland is 3.5 -4%? And in Ukraine, I emphasize once again - 20-24%!

That is why in 2019, against the backdrop of a decreasing manufacturing economy, Ukrainian banks received $2.5 mln in net profit!

The question is, why should bankers solve the main problems of the mortgage product in order to satisfy the need of about 6 million citizens of Ukraine and build another 2 billion square meters for them? Isn’t it better to hide these problems of the construction industry and the whole real sector of the economy and quietly continue to cut the "loot"?

Volodymyr Zelensky, when will your president’s word gain weight and become binding for executing? Or shall we stay silent about this? And yet, what needs to be done? First of all, it is necessary to attract investment both in the domestic and foreign markets. Not loans and borrowed funds for the placement of government bonds, but direct investment in production.

For this, there already exists a new investment strategy developed to improve the banking and non-banking systems, capital markets and risk hedging businesses that will be subordinated to the needs of ensuring economic growth and innovative development, and not for the benefit of currency speculators. And I suggest starting with building an investment hub in Kyiv, the main tasks of which will be:
- financing of economic development projects in the industrial and agricultural sectors of the Ukrainian economy;

  • - attracting of medium and long-term investments by enterprises;
  • - ensuring the mobilization of foreign capital;
  • - attracting long investment funds in the organized stock market and joint investment market;
  • - organizing activities of the International Investment and Exchange Center in Ukraine.
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