IMF mission in Kyiv saw ‘performance’ reforms with zero-sum outcome

Author : Olexandr Honcharov

Source : 112 Ukraine

It looks like Cabinet of Volodymyr Groysman does not want to notice our economic and institutional crisis
12:00, 17 September 2018

Open source

It looks like Cabinet of Volodymyr Groysman does not want to notice our economic and institutional crisis. The fact is that Ukraine does not have a special body that would monitor risks and markets, as well as an institution that would assess the forthcoming crisis in the light of the growing public debt.

Therefore, the situation would rapidly deteriorate further. Even if the Cabinet of Ministers and the National Bank (NBU) create a more efficient and centralized system for regulating the financial sector and tighten control over budgetary policy, this will still not help the authorities in this budget and economic cycle. In addition, over the next two years, Ukraine must pay in total over $ 10 billion of foreign debts in the face of rising interest rates on foreign debt capital markets. By the way, our Ministry of Finance, following the increase in the National Bank of the discount rate from 17.5% to 18% per annum, also raised the rate of placement of hryvnia bonds from 18% to 18.5%. But this now does not help prevent an unfavorable stage.

Related: Ukrainian government is trying to make the IMF and the United States shell out

Moreover, PM Groysman himself provokes a new round of inflation, the collapse of the manufacturing economy and the further growth of the national debt. Why? Starting from October, Ukrainians will spend more than earn. After all, as the Minister of Energy and Coal Industry of Ukraine Igor Nasalyk stated, in the near future the Cabinet will raise the price of gas for the population. This is one of the conditions for the International Monetary Fund to provide us with another tranche of a loan of $ 1.9 billion. And if the IMF does not increase the program of financial assistance, we will face a collapse.

Yes, there is practically nothing to take from a poor country, and the IMF is a typical creditor, for which the main thing is paying back money in time. But, unfortunately, our government does not know where to take money to service previously taken loans. And now we are all reaping the fruits of the weakness and incompetence of the Cabinet as our macroeconomic and financial coordinator. The increase in the price of gas for the population and industry at a rate of 23.5% is only the first hard step.

Representatives of the IMF mission see that we do not demonstrate positive results, and the so-called economic reforms are just 'performance' reforms, the results of which are not visible. Accordingly, a clear difference between the truth coming to the experts and the official information disseminated by the authorities leads to a split of thoughts.

Related: IMF mission begins work in Kyiv

Even maintaining such a high, 18% discount rate of the NBU, is the destruction of any private initiative, any competition. The authorities must finally understand that the failure of Ukrainian small and medium-sized businesses is the failure of the state's economic and monetary policy. Sorry, but now those who have a lot of guts come into the Ukrainian production business.

This shows why such expensive credit money does not go in the conditions of our monopoly financial capitalism in the real sector of the economy. And this situation has already been overestimated - everything in small and medium-sized businesses is deteriorating. Is it possible to maintain a sufficient level of consumption and production potential without credit mechanisms? No. That's why I would like to emphasize once again: it is time for our leaders to understand that the banking business is so good as the country's economy is good, that only the real sector of the economy can become the main driver of the restoration of the Ukrainian banking system.

Related: NBU expects tranche from IMF in autumn

And what is happening now is a conscious collapse of the economy. Therefore, Ukraine today is the cheapest European market. Even the countries of Africa and Latin America with a huge number of structural problems are traded with higher multipliers. And, frankly, since the mid-90's, we have traded at a discount. The only exception was a short period during the 2000s. Why so, what are the reasons and do the authorities know about them, launching, for example, large-scale privatization of 2018-2020?

I would single out three main reasons why we have so little direct investment. First, it is a too low quality of corporate governance. Secondly, a contradiction in the legislation and judicial system. Thirdly, the lack of domestic investors in the Ukrainian market of joint investment. And what about the other countries, for example, Poland, when the international investors have turned away from it?

At such moments Polish non-state pension funds and institutions of joint investment entered the game. And Ukraine does not have a proper amount of national long money and specialized institutions. And unlike Poland, which has made great strides in creating its own capital market, our people's deputies for several years cannot pass bill No. 7055 "On capital markets and regulated markets." Therefore, Ukraine is still not a civilized European market, but a derivative of raw material prices, which is in the hands of a small group of owners of well-known local financial and industrial groups.

Related: What hryvnia exchange rate we expect by the end of 2018

In fact, it is high time to chose the path of calm liberalism. We should avoid rash adventures, annoying the heavily impoverished people. Finally, we clearly understand one of the main lessons of modern Ukrainian reformism: there is nothing worse than deferred reforms. Therefore, Ukraine should conduct economic reforms very quickly. In case of success, it is possible to carry out economic reforms in two years.

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

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