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Negative factors of current Ukrainian economic decline

Author : Olexandr Honcharov

So, our Western partners and investors see: the state budget deficit-2018 is huge, the National Bank's currency reserves are declining for several months in a row, there are no direct investments, international creditors do not give money, because they know that these officials steal from the losses and credits. And yet, where can you find money to pay pensions and salaries to state employees, and most importantly - to raise the national economy?
21:28, 25 September 2018

 

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On September 20, President Petro Poroshenko addressed the Parliament with an annual message and traditionally announced his achievements over the year, as well as new tasks of foreign and domestic policy. However, he did not say that foreign investors long ago began to call us "Ukraine in the jungle" because of the lack of legislative support for the development of our civilized market.

It is this comparison that foreign colleagues give in connection with our current economic model. After all, in the structure of the Ukrainian economy, agriculture and the mining industry occupy more than 60%, that is, our economy is built on the raw materials for more than half. But no country in Europe or in America is developing in such a way anymore, except for Russia. Plus, it is simply impossible to do business in Ukraine with such high administrative rent and powerful tax pressure. Ask high school and university students what they want to be? Most will answer: an official. And being an entrepreneur has become not only unprofitable, but also dangerous.

To all these negative factors, the threat of default became quite obvious, and although representatives of the International Monetary Fund brainwashed the Cabinet, but then we are still waiting for the shock devaluation of the hryvnia. Judge for yourself. Last week, September 19, the IMF mission completed its work in Kyiv, leaving us without an answer to the key question: how much will the gas tariffs grow for the population and will this be enough for the fund to provide Ukraine with such a long-awaited tranche of 1.9 billion dollars loan? But on the eve of this visit, the Prime Minister frankly wrote in his Twitter that we expect "default, stop of production, devaluation of hryvnia and inflation" if there is no money from the IMF.

By the way, without this loan there will be no promised loan money from the European Union and the World Bank. And this happens in the situation when next year (according to the draft state budget-2019) we need to pay 400 billion UAH, counting on the stability of the national currency. But what stability can we talk about now? The hryvnia today is a pre-election currency, and therefore it will experience enormous pressure. Plus, this officials need to save the super profits of exporters, decrease "holes" in the state budget-2018, reduce the balance of payments, etc., etc.

Well, after a sharp depreciation of the hryvnia and inflation, we are also awaiting the collapse of the state bonds pyramid, which the Ministry of Finance already places with a record interest income of 18.5% per annum without taxation. Accordingly, the issue of government bonds, as a system, entered the regime with an exacerbation, behind which is only one result - the self-destruction. Moreover, non-residents increasingly began to dump previously purchased government bonds, fixing profits and withdrawing it from Ukraine. Speculative capital is running away, it wasn’t stopped by even the super-attractive bonds, when the discount rate of the National Bank is 18%, and the expected level of inflation by the end of 2018, according to the forecasts of the National Bank, is 8.9%.

I am sure that the population will tolerate all this and watch Ukrainian digital TV with optimism, not understanding, for example, that we are on the verge of the 4th industrial revolution and there is one technological zone in the world - the United States. But instead of benefiting from this, government only fixes losses and continues to beg more and more loans from the world. But today in the entire civilized world, prices for any underlying asset, in particular gas, oil, wheat, corn, electricity and others, are determined in the derivatives market, where futures, forwards, options and other financial derivatives are traded. They also hedge the risks. This has nothing to do with the balance of supply and demand. And certainly now the Cabinet does not know how the equilibrium price of the underlying asset is formed in the spot market and in the derivatives market, for example, in gas, and ministers and people's deputies simply don’t know the fact that at least 40% of inflation lay in investment goods and products.

Therefore, the IMF analysts did not try to explain anything to our top officials, they just gave them concrete figures for the increase in energy prices and that's all. After all, from 2000 year USAID and EBRD provide us with technical support in creating the legislative base for the development of the capital market in Ukraine and, in particular, the derivatives market. However, lawmakers have not voted for bill No. 7055 "On Capital Markets and Regulated Markets" even in the first reading. Do our lawmakers understand why Americans and Europeans insist on the adoption of this key draft Law by the Parliament? I'm sure the West is tired of watching how our authorities just fix the losses. But how many years in a row can you fix losses and beg for the new loans? Most likely, the Administration of the President of the United States will soon put a period in this matter.

So, our Western partners and investors see: the state budget deficit-2018 is huge, the National Bank's currency reserves are declining for several months in a row, there are no direct investments, international creditors do not give money, because they know that these officials steal from the losses and credits. And yet, where can you find money to pay pensions and salaries to state employees, and most importantly - to raise the national economy? First: the economy of Ukraine can now be saved from corruption only by the most severe authoritarian power, which should manifest itself in a consistent struggle against embezzlement, bribery and nepotism. That is, literally imprison the real political puppeteers. Second: to conduct a detailed audit of the state budget obligations.

Third: to create and implement a set of effective incentives for the development of small and medium-sized businesses in Ukraine, since an entrepreneur is a taxpayer, without whom there will be no state budget. And most importantly: does someone in Ukraine believe in the implementation of the first idea? Especially considering the fact that we have already experienced two Maidans. We remember how then politicians talked about the welfare of the country and the welfare of Ukrainians! And having occupied the posts, they immediately forgot about all their promises. Therefore, the problems will become even more serious if society is not shaken up again. Now a whip and a carrot are needed, society needs to properly decompose them in relation to officials and politicians.

Finally, it’s the time for us, the Ukrainians, to look at ourselves. Now everyone should be aware that in the coming years the situation will not improve. As soon as we understand this, we must act accordingly. Well, it's time to pay attention to the fact that the word "conscience" in general disappeared from the speeches of our leaders. The word "morality" is also absent. We must work hard both with ourselves and with the state to get these words back into the speech of politicians.

Read original article at 112.ua

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