Default is not far: How to save Ukrainian 'Titanic'

Author : Volodymyr Pylypenko

Source :

The situation leads to deindustrialization of country, closure of enterprises, unemployment and labor migration
21:37, 31 July 2017

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112 Agency

Recently, the public's attention has been focused on "humanitarian" problems. Ban imposed on Russian social networks, and removal of MP immunity. Or, for example, recall that little noise regarding citizenship - whom should we grant it, and whom should be deprived of it. Speaking in brief - you do not have to be bored.

At the same time, in the maelstrom of all these political intrigues and scandals we do not notice a very important thing - where our economy is rolling to. And it rolls, without exaggeration, to the very bottom.

How to divert public attention from economic failures? It's very simple to change the focus of attention. Instead of solving real problems, we are offered of "Mortal Kombat" of the domestic format - fighting against imaginary enemies. Strangely enough, the public is doing it.

At a time when representatives of the authorities are ready to tell each other who of them is "the most patriotic patriot ", the country confidently goes to default with all the ensuing consequences.

Debt catastrophe

The latest news, which confirms rather pessimistic economic expectations, is the Statistics Service data on the fall in industrial production in April by 6.9% (compared to March of this year) and by 6.1% (compared with April 2016).

Against the background of the promulgated payments that Ukraine must make in the next three years on its debt obligations, there is a smell of a catastrophe in the air.

According to experts, with each subsequent year, the cost of repaying Ukraine's external debt will grow.

According to different estimates, over the next three years (2017-2019), the National Bank, the Ministry of Finance, state banks and Ukrzaliznytsya company will have to pay $ 14 billion for foreign debts, taking interest into account!

However, if the drop in the industrial segment of economy will occur at such a frantic pace, as we see it today, it is completely unclear how our country will "seek" all these fantastic amounts needed to pay off debts? Moreover, some experts already warn that there is not enough currency in Ukraine for this.

Despite such sad "prospects," it remains only to give up on everything and focus on the export of raw materials and labor. After all, you will agree - this is the easiest way, which (and I'm sure of it) will please all our reformers.

The last hope is labor migrants

So, according to the National Bank, in 2016, the country received remittances from labor migrants for more than 5.4 billion dollars. This amount is approximately 20% of state budget revenues of the previous year, and is 7% of GDP.

Equally significant is the fact that this year the IMF transferred to Ukraine $ 1 billion as a new tranche for the sake of which the government, literally, was ready to kiss the hands of Western creditors. First, they tried to introduce a subscription fee for gas, then they began to develop reforms, most of which are not perceived as right by Ukrainian people. At the same time, the authorities shyly keep silent that only in a few months of this year our fellow citizens working abroad transferred $ 1.37 billion to Ukraine.

That's fine! Why create new jobs in Ukraine, stimulate domestic production, establish a favorable business climate? This is all long, difficult, it requires considerable strategic attempts. There is no time for all this. Tell me, how our government should be engaged in the development of the economy, while all its members’ thoughts are occupied by the self-PR? So the last hope is our labor migrants, who have proven their super efficiency for more than a decade. They work hard in Italy, Spain, Poland, to at least somehow support their families.

At the same time, the state considers them also absolutely unselfish rich people. In the pension reform, in particular, it is stipulated that persons without sufficient insurance experience (and this is hundreds of thousands of migrant workers) will not have the right to receive pension. Here is the "gratitude" for years of hard work in a foreign land and support of the Ukrainian GDP.

Action Plan - where is it?

The government did not report to the parliament for the year of its work, moreover, it decided not to share its plans about the prospects for repaying external debts with anyone.

In the conditions of the prolonged economic crisis, such a "silence" is inappropriate. Still, it would be very polite of them to step down from the pedestal to mere mortals and sound a concrete plan of action - a guarantee that the authorities will not allow the default to start. The society has the right to know how the necessary amounts will be accumulated in the budget, in state-owned banks, state-owned companies.

It would be also interesting to hear opinions on the development of Ukraine's industrial potential. After all, as it is known, the majority of enterprises are now in very poor conditions.

Actually, in order for the state to have a currency to service debts, it is necessary not to close these enterprises, but to create such conditions that they can reach at least the pre-crisis level. But we do all the things to ensure that our industrial "Titanic" finally and irrevocably falls to the bottom.

An indicative example in this regard is another initiative of the Cabinet. They proposed to raise the rate of a single social payment of employers, whose employees work in hazardous industries.

Of course, such a position is to some extent fair. After all, people are going to retire early. Accordingly, taking into account their reduced insurance experience, they pay less contribution to the pension fund. It is logical that employers cover this difference. However, under current conditions, such proposal cannot be implemented. First of all, we are talking about the enterprises that suffered most during the last 2-3 years and which, mainly, formed our GDP - metallurgical plants, chemical industry enterprises. Russia as one of the main buyers of their products, stepped aside. Accordingly, enterprises significantly reduced the volume of output. In the new markets, they have not yet managed to navigate. Because of the annexation of Crimea and the war in Donbas, we lost a number of industrial facilities. And those that remain, now have a miserable existence. If we now increase the rate of a single social contribution for them, it will simply kill them.

First, we need to stabilize the economic situation in the country so that all these capacities can stay afloat. Only then can we talk about any justified increase in unified social payment.

Getting out of the impasse

An important point which the Cabinet should pay attention to is an active work to find markets for Ukrainian enterprises. In this direction, the economic policy of our power is absolutely disastrous. It meets the interests of importers, but the balance between export and import-oriented industries is violated. The domestic market opportunities are also not fully utilized.

This leads to the deindustrialization of the country, the closure of enterprises, unemployment and migration of labor abroad.

The state with a powerful industrial-scientific potential, possessing space, aviation, nuclear industry, is turning into an agrarian and raw materials appendage of the countries of the West. It's nonsense!

As you know, raw materials cost several times cheaper than industrial products. And this is another factor why our economy is in such a deplorable state. With further such a policy, a default is inevitable.

According to a number of economists, in order to overcome the crisis, it is necessary to implement a fundamentally different economic policy, under which priority support should be provided to export-oriented industries. Only in this way the distorted economic structure can be changed and the living standards of Ukrainian citizens may raise.

And another very important recommendation for the authorities is to distract them from the political struggle for a while and to engage in systematic work. This is exactly what Ukraine needs now, not the endless production of new loud political slogans and unrealistic promises.

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