Default in Ukraine postponed until 2019, but debt problems not resolved

Author : Olexandr Honcharov

Source : 112 Ukraine

Western partners are puzzled: why the European Ukraine, having such a huge resource potential, cannot even come close to the growth rate of the world economy
21:37, 19 June 2018

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Apparently, Prime Minister Groysman chose this strategy: waiting, without changing anything in economic policy. This is an erroneous and extremely dangerous strategy, at which our most important creditor, the International Monetary Fund, points out ever more persistently. At the same time, Western partners are puzzled: why the European Ukraine, having such a huge resource potential, cannot even come close to the growth rate of the world economy (in 2017, the world GDP growth, according to the IMF, was 3.7%, and ours - 2.1%).

And here, for example, in China, GDP growth rates for the past (2017) were 6.9%, household incomes grew by 7.3%. In 2018, the Chinese consumer market is again looking forward to excellent prospects, as consumption will exceed 60% in their driving force of economic growth. The Chinese have already ranked first in the world in terms of the number of middle class, which exceeded 400 million people, which further creates favorable conditions for the development of the domestic market. To all this, the number of Chinese tourists traveling abroad is also growing, which contributes to the economic growth of all countries of the world, including Ukraine.

And we look worse in many spheres, our political "top" has collected everything for themselves: finances, natural resources, control over the state budget and the media. Also what have received? In archives I recently came across a sheet of four years ago with infographics and a list of formulations from the presidential "Strategy 2020" (62 reforms and 2 national programs). What is done and, most importantly, what the results we have achieved? I thought about it, and I felt sad. By the end of 2018, we have to pay 12.5 billion dollars to creditors, in 2019 payments for state debt obligations will amount to 12.1 billion dollars, and in 2020 - 10.2 billion dollars.

Tin total: from 2018 to 2045, Kyiv has to pay 117.4 billion dollars. Huge figures. And this is official statistics. A month ago, on May 14, the Ministry of Finance announced that in 2018 we must return 325.53 billion UAH to creditors, respectively, we have to repay UAH 227.89 billion of domestic debt (of which UAH 77.78 billion is spent for its servicing) and 97.65 billion UAH external (of which 43.33 billion UAH – is the cost of its maintenance).

Yes, the situation is overdone. I am sure the IMF understands that these loans will not be returned, as the growth of the Ukrainian economy is less than 2% per year, and the ratio of the total debt and GDP has already exceeded 100%. On June 13, the European Parliament approved the allocation of 1 billion euros to Ukraine, but now we will have to fulfill a number of requirements for obtaining a tranche from Brussels, including a moratorium on the export of round timber. And only if these requirements are fulfilled financial assistance to Ukraine from the EU will come in two tranches of 500 million euros over the next 30 months.

At the same time, our people are patiently waiting for a reasonable economic policy in Ukraine, able to realize the huge national potential. Will they see it? Not until the election in 2019, of course. Well, before the election they should answer the key question: who will distribute the remaining money? And against the backdrop of this degradation of the economy, it is possible to enumerate entrepreneurs who have become politicians who have either completely lost their business in recent years, or have increased their fortunes by tens or even hundreds of times. The names of most are known, they quite often flash in the news. Our Western partners have already started talking about this aloud, insisting on the speedy launch of the Supreme Anti-Corruption Court.

Alas, but now there is no decency on the Ukrainian market, as in all our policies. The strike on business unexpectedly and with lightning speed, like a shot in the back, can happen at the most inopportune moment. It seems that entrepreneurs are increasingly coming to our market for a short time, obviously not to develop it. Especially when the "game" is going to big money, then in general one does not care about issues of ethics and morality. And under these conditions, there is a huge inflation of costs. How to deal with this, especially in the situation when the IMF credit source for us has dried up? Plus, as the director of the NBU financial stability department Vitaly Vavryshchuk told a press conference on the finality report, "today the external debt of the banking sector has approached the $ 6 billion mark."

Just want to note that this is not a rancor and no poisonous reasoning about our way to default. In the most difficult situation, you can find a strong and right decision. And there are such examples in the world. In particular, we should take into account the experience of Argentina, which in 2005, having declared a default, managed to restructure its national debt with a significant discount - up to 80%. This is really a worthy example of the struggle for every Argentine peso. Also note that in 1947, Britain declared default, and in 1971 - the United States (the so-called "Nixon shock").

By the way, in 2006, US Federal Reserve analysts conducted a study and came to the conclusion that the defaults of sovereign states are not an exception, it is rather a rule. Therefore, Volodymyr Groysman's Cabinet should not wait, but urgently have to make a choice: either to retain, not launching the Ukrainian economy to its full potential, and then it will fall down, or, without resource limitations for industrial potential, to increase economic activity tens of times. In addition, with such high unemployment rate, we now have an unlimited labor market. In a word, there is a question of a principled political choice.

First of all, this is dynamic catch-up in those industries where we are not yet very far behind developed countries. Secondly, we must stop our intellectual losses, namely those people who, not finding work here, are working abroad and implementing modern Ukrainian technologies there. Thirdly, it is the modernization of our production facilities on the basis of a new technological order. The combination of these strategies could give Ukraine a GDP growth of up to 7-8% per year. At the same time, we will have to strain very hard and agree that the next few years we will not safely live. This is understandable, miracles do not happen.

And finally the question is not even about well-being. The question is, what choice will the Cabinet and the Verkhovna Rada make? As I have already noted, now Volodymyr Groysman is at a crossroads.

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