Bitter reasoning of Ukraine's PM Groysman

Author : Olexandr Honcharov

Source : 112 Ukraine

In January 2019, industrial production in Ukraine decreased by 3.3% compared to the same period last year
12:00, 5 March 2019

Ukrainian photo

I doubt that someone else in Europe, except for Ukrainian PM Volodymyr Groysman, manages to intelligibly and sincerely explain to the population that his Cabinet of Ministers can maintain socio-economic stability due to enormously high discount rate of the National Bank at the level of 18% per annum and, which also means expensive loans, high utility tariffs, and sequestration of the 2019state budget.

Unexpectedly, people sincerely believe in it.

I am afraid that now the picture is much worse: in January 2019, industrial production in Ukraine decreased by 3.3% compared to the same period last year. And this is taking into account the effect of a very low base since we have experienced four hardest years of recession: in 2015, industrial production declined by 13%, in 2014 – by 10.1%, in 2013 – by 4.3%, in 2012 – by 0.7%.

Related: Share of IT industry makes four percent of Ukraine's GDP, - Ministry of Economy

In addition, our financial authorities continue to successfully provoke "currency swings" and inflation expectations. What does it mean? Well, if we study the situation of the hryvnia exchange rate in the foreign exchange market from the beginning of 2019, we will notice this “swing.”

For example, a couple of weeks ago, the exchange rate swung strongly towards the depreciation of hryvnia, and a few days later it leads the opposite direction.

Of course, Ukraine’s National Bank, not without administrative measures, managed to pin down in the foreign exchange market capital outflow from our country. And, I think, quite a few exporters and currency speculators are still confused.

However, we still have many risks and uncertainties associated with the unknown current date, during which the NBU and the Cabinet of Ministers would maintain high inflation at the current level.

Related: Three triggers for Ukraine's sustainable economic growth

Talking with my business colleagues these days, I realize that they are now dissatisfied with the loss of profits and making a profit in the very first months of 2019. And this, in turn, forms their deferred expectations; as soon as the pre-election situation worsens, they will immediately raise the prices.

This situation is especially dangerous for the Ukrainian markets, and for the economy as a whole, as it creates inflationary expectations.

Certainly, Groysman and NBU head Yakiv Smoliy must fight with it first. Moreover, today it is too dangerous to heat conflicts in financial, economic, and corporate disputes. For example, you cannot turn a blind eye to the fact that, according to YouControl control company, as of January 1, 2019, Ukrnafta’s (50% + 1 share of Ukrnafta belongs to Naftogaz of Ukraine, and 42% to the group of companies associated with oligarch Igor Kolomoisky) tax debt is almost 521 million USD!

Unfortunately, Ukraine’s Naftogaz State holding management refuses to publish the results of the audit, ordered in July last 2018. It either does not understand the meaning of this or consciously does not want to understand the negative consequences of such a decision.

I do not rule out that key issues should be considered at a meeting of the supervisory board, and then, possibly, at the general meeting of Ukrnafta shareholders, as required by current Ukrainian legislation.

The resolution of disputes and conflicts in the legal field or out of it is a crucial signal for our internal and external investors. The most dangerous is the loss of confidence in the Ukrainian market and its consumers.

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Do MP Groysman and his team understand this? I am sure they do, since Ukraine’s  today’s information space stimulates oligarchs to make money, creating an uncompromising struggle with political opponents.

You can earn big money in one way, by not paying them to someone else. Therefore, there is such a fierce struggle for control over various financial flows "at the top."

So this week, as we know, the lawmakers agreed with Igor Kolomoisky’s MPs on the issue of Ukrnafta, but the oligarch faced difficulties with Ukrtransnafta.

February 28, a new round of conflict concerning Ukrnafta has begun since the Verkhovna Rada plans to consider a draft resolution on taking measures to stop the unjustified accrual of payments for natural gas.

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According to the State Statistics Committee, at the end of 2018, the debt on payment of utility bills has already reached a record 2 billion USD!

And the first to suffer from the "non-payments crisis" will be the companies involved in the energy industry, and then the entire population. This is a vicious circle.

That is why we should pay attention to the Cabinet’s recent statement about its readiness to reduce the gas price for the population by 2 or 4 times if it does not contradict Ukraine’s international agreements with the International Monetary Fund and the EU.

Related: What will Ukrainian economy look like after election campaigns in 2019?

So what should we do? I think, at least, it is necessary to support investment activity, providing industrial enterprises with relatively cheap and long-term loans. We should introduce accelerated depreciation for all industrial enterprises and reset the land tax to 2-3 years. And, of course, to implement a counter-crisis and proactive fiscal, fiscal and monetary policy.

Ukraine’s newly elected president and, accordingly, the prime minister would have to choose between two things. They would either destroy the monopolistic-oligarchic foundations of the national economy, and recreate the country’s competitiveness, or face hungry riots and negotiate with the third Maidan protesters.

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