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Authorities do not recognize their inability to save Ukraine from crisis

Author : Olexandr Honcharov

Perspectives of the Ukrainian market and the world economy are far from being promising
09:32, 10 July 2018

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Some experts believed that the Verkhovna Rada has a strong coalition of at least two of the largest factions – Bloc of Petro Poroshenko (BPP) and the National Front (NF). But last week we have witnessed boycott of the presidential faction and the formation of a new voting majority without a BPP. This parliamentary crisis might bring the country to the chaos. After all, even the financial authorities began to consider the worst scenario for Ukraine - 40 UAH per dollar and default.

Unfortunately, today most people's hopes have burst; the perspectives of the Ukrainian market and the world economy are far from being promising. So, for example, the well-known investor and billionaire George Soros predicted coming of the economic crisis in the near future, noting: "Everything that can go wrong went wrong." He also stressed that the growth of the dollar and the flight of capital from emerging markets could lead the world to a new and more powerful economic crisis, and potentially dangerous are disruption of the nuclear deal with Iran and the destruction of the "trans-Atlantic alliance between the EU and the US."

Related: Do Ukrainian authorities need another round of hryvnia devaluation?

In his opinion, these events will cause upheavals, including the devaluation of the currencies of developing countries. Yes, and leading analysts of the Bank of America are also afraid of the global economic crisis that may occur at the end of 2018 under a scenario similar to 1998 (at that time there was a dollar growth and a difficult situation in the Asian real estate market, but now the biggest crisis for the last decades of trade war between America and China). But I have a feeling that our establishment allegedly does not know about all this. This is not the worst thing here; the fact is that the Ukrainian politicians do not understand what to do. The interests of the big capital and of our entire society are incredibly far from each other. It is this contradiction that generates many disproportions that push Ukraine to the next political and economic crises.

Well, the Cabinet of Ministers and Verkhovna Rada, PM Groysman, or Speaker Parubiy cannot clarify our future. Well, we will have to wait for practical steps and then judge the course of intra-power discussions. However, recently the Prime Minister increasingly began to complain about the ineffective fight against corruption and smuggling. This is important, of course. But this is at least awkward, as decency demands accompanying such statements with either a clear explanation and correcting of the situation, or resignation.

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Although it should be recognized that the current Ukrainian economic model, with its hypertrophied role of several financial and industrial groups, has no future. However, the huge political influence of the owners of these financial-industrial groups (FIG)s reliably blocks not only real steps to socio-economic reforms but even some serious talks about reforming this model. Hence, presumably, this is the reason of sad futility of the current composition of the government and the Verkhovna Rada. I involuntarily remembered how last year the Nobel Prize winner in economics Paul Krugman drew the attention of our politicians to this:

- Analyze what you can offer to the countries of the European Union, in addition to cheap labor;

- In Ukraine, still, despite all the tightening of the belts, has a huge army of civil servants, I cannot even imagine why the country needs so much of them;

- Economic crises do not work during economic crises.

And now I am wondering why Viktor Pinchuk invited the Nobel laureate if our top officials continue to do everything exactly the opposite? Therefore, our national economy is still experiencing enormous difficulties, real salaries are practically not growing, which means that our small and medium-sized businesses are getting less and less profit due to the financial starvation threatens to fall into a crisis peak by the end of the 2018 year. However, we have opened credit locks, in particular, from the IMF. Accordingly, our authorities are still trying to continue the race of acquisitions at the expense of borrowed money, at the expense of shrinking salaries and loans.

Yes, the credit rally has pushed the crisis gap for several years, but at the same time it has made it much deeper, and we will see it already in 2019. Moreover, experts repeatedly pointed out to the Cabinet and the Verkhovna Rada that as far as the state reduces social expenditures, the debt of the Ukrainian family is increased so much that it is forced to borrow what it received from the state earlier.

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And now, loans in Ukraine have become a kind of "pyramid" or "domino system". When borrowers stopped giving them on time, the crisis shock experienced the full extent of the Ukrainian banking system, sending a little over 90 commercial banks under the knife in the last two years. Accordingly, it is not difficult to predict that the Ukrainian financial crisis is the threshold of a new large-scale economic crisis. In addition, it will bring a political crisis closer. Already this week we will find out whether a parliamentary faction will come out of the parliamentary coalition.

If this happens, then the president has started the process of early elections to the Verkhovna Rada, and blackmail on the CEC is just an excuse. Next, a rough and cynical outcrop of all the vices and sins of yesterday's political companions will begin. It is especially interesting for the voters to find out the most vulnerable and painful points of political alliances of parliamentary factions.

Related: Ukrainian seaport: Balancing between economy and geopolitics

Although the Ukrainian economy will inevitably weaken even more, accordingly, in the next two years we are expected to face very large shocks and dangers. I think we are facing a big war. History shows us many examples: when the economy is very weak, wars are happening. And this seems to politicians to be the only way out of a deep crisis. Of course, this looks terrible, but the countries that passed through it invariably invested money and created new jobs to restore everything that was destroyed.

So in late 2018 - early 2019, all the troubles will just begin. And we will see them in full in 2020.

This column does not necessarily reflect the opinion of the editorial board or 112.International and its owners.

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