Three triggers for Ukraine's sustainable economic growth

Author : Olexandr Honcharov

Source : 112 Ukraine

Monopolies and indispensable attraction of administrative resources are rampant in our country
14:00, 4 March 2019

112 Agency

President Poroshenko has more and more frequently begun to focus people's attention on potential opportunities of our economy; sectors, where Ukraine has more competitive advantages than other countries do. That is, these sectors should become the base for creating a better future and increasing the people’s standard of living.

Petro Poroshenko was talking about agro-industrial complex, since in the past in 2018 our farmers harvested more than 70 million tons of grain and, as the president stressed: "This is our absolute record. Ukraine has never harvested such a crop before."

Related: Ukraine exported grain for $7,2 billion in 2018

Also, it should be noted that we are among the top ten world producers of grain, among the top three world exporters, we are number one exporter of sunflower oil (more than half of its global exports), and we are in the top ten world dairy products suppliers. However, these successes occurred in spite of - not as a result of.

After all, the Ministry of Economic Development and the Ministry of Finance still have nothing but good intentions to stimulate market participants at the expense of credit and borrowed funds of our western partners, thus continuing to increase the government debt of Ukraine.

Only in 2018, Ukraine’s Ministry of Finance borrowed 10,21 billion USD.

The structure of these foreign borrowings is as follows: 725 million USD was received during placement of short-term Eurobonds, 2 billion from long-term Eurobonds, 500 million EUR as part of the IV program of macro-financial assistance from the European Union, 349 million EUR as a loan guaranteed by the World Bank. Where did this credit money go?

Related: EBRD supports Ukraine’s efficient grain logistics

I dare to assert that so far no reform of the Ukrainian economy and national markets has happened. There is still no independent judicial system and the real fight against large-scale corruption, the inviolability of private property is not ensured, and the Supreme Council does not adopt the most important economic laws.

Monopolies and indispensable attraction of administrative resources are rampant in the country. Therefore, the current economic model with the existing monetary policy cannot be effective.

The people are often said that they do not need to think about any socio-economic problems – the market will solve and adjust everything. But the big capital is not going to ensure the effective use of all resources.

Now, this dogma has nothing to do with reality: if everything is a matter of money, the majority of Ukrainians are left out of prosperous life.

Related: Grain replaced metal: Metamorphoses and paradoxes of Ukraine’s economy

Therefore, reducing the influence of corrupt bureaucracy on the social structure and Ukrainian business is simply impossible.

None of them would defend the interests of the totally impoverished electorate, and even if the leaders of the United States and the European Union (in some fantastic way) force them to do so, then the resistance of their own regional teams would be the most severe.

Although President Petro Poroshenko continues to inspire: “The profitability of the agro-industrial complex through the mechanism of decentralization would be embodied in weighty social projects in the rural areas. About 500 ambulance stations are being built. And we have already bought cars for them. And this is only part of the large project development of rural healthcare."

Related: Should Ukraine become agrarian superpower?

At the same time, he emphasizes that this initiative was made possible thanks to the efforts of the General Prosecutor's Office, which confiscated huge funds from the previous government.

Yes, there are successes in the agro-industrial sector and the Prosecutor General’s Office, they are encouraging, but at the same time, we are seeing how industrial production is decreasing, the number of new infrastructure failures is increasing, the number of unemployed is increasing, and real incomes are decreasing.

And yet I think this situation in the country`s economy is fixable. First of all, we need to retain national markets, set peace in the east of the country and reach macroeconomic stabilization. Is it possible to solve this structural crisis in the Ukrainian economy in a simple way? No.

Situation on the market is constantly changing, and some unique opportunities arise. But political leaders either do not notice or do not want to see these opportunities.

At the same time, the current economic model needs to be radically reformed, so I propose three main triggers for launching the country`s economy.

Related: American Cargill invests $100 million to build new grain terminal in Ukraine

First, we should freeze the tariffs of natural monopolies, as well as transport services of Ukrzaliznytsia (Ukraine’s railways' company) and large energy holdings, which are able to overcome the crisis by reducing their own costs and abandoning non-core assets.

Secondly, we should strengthen the financial and banking systems, encouraging the consolidation of banks, developing a system of guaranteeing interbank loans to revitalize the lending market of the real sector, abolishing unreasonable preferences for the state banks, and legally limit the margin when lending to businesses and individuals. Favorable investment climate and an international investment hub in Kyiv should be created.

Third, structural economic reforms should be carried out, and reforms mean putting pressure on the government. Perhaps, no other European country has such a primitive monopolistic-oligarchic economy. Domestic demand should be a source of economic recovery and growth. Well, we must constantly talk about the structural reform of the national markets.  Of course, this is a very difficult task, and we should realize that it cannot be solved quickly.

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