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Ukraine cannot get out of crisis, as its economy working for foreign offshores

Author : Olexandr Honcharov

The profit centers are located outside of Ukraine, on the offshore accounts
20:38, 18 January 2019

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People have a desire to get decent real incomes and have decent living conditions. The existence of a powerful middle class is fundamental to ensuring normal domestic demand in Ukraine. But in order to understand whether we can achieve this in the medium term, we must assess the possible risks of the next 2-3 years, as well as study the negative inertia, gained over the last 10-15 years. We should ask ourselves: how all this oligarchic rile might take?

Of course, it will not disappear soon, because our society is humble and downtrodden, and the Antimonopoly Committee is weak and obedient. Therefore, we do not have the strength to destroy the economic model built by the oligarchs, where virtually all profitable assets of the state are concentrated on the one side, while the large holdings and export-oriented enterprises that are part of the same financial-industrial groups are on the other side.

Related: Why oligarch Akhmetov snatched control of Ukraine's critical infrastructure

It is also clear that we will not be able to become a consumer society with a large middle class. And the politicians cherished by oligarchs would continue to impede the people from critical thinking, persuading the people to be guilty of its worthless life. And now, the Ukrainian elite is on the Forbes list, and its total wealth many times exceeds all the tranches of the International Monetary Fund. January 1, 2019, the minimum salary of the workers is 149 USD per month (previously this amount was 132 USD). The living wage has grown by 2,7 USD, so now its 66 USD.

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Joseph Stiglitz, who was awarded Nobel Prize in Economics, has introduced the concept of information asymmetry. What does it mean? When drafting a public policy agreement, voters are better aware of the peculiarities of the current situation: any politician can deceive you, while you cannot deceive a politician. What should we do in this situation? I am convinced, there are only two scenarios for deoligarchization. The first is the forceful destruction of the monopoly-oligarchic structure. The second is destruction through transnational corporations. Most likely, the Americans and the Chinese would form a new elite, and the old will simply be marginalized. At the same time, Europe has its own problems, especially France and the UK.

 

Related: Ukraine's oligarchs and elections in 2019

Therefore, de-offshorisation of our economy presupposes the unity of interests of a significant part of Ukrainian society. Huge resources are hidden here. And the greatest danger is that the profit centers are located outside of Ukraine, on the offshore accounts. Instead of lending to production companies, our commercial banks are actively involved in the purchase of the government bonds at 20% per annum (!), National Bank (NBU) deposit certificates, and carry out various speculative foreign exchange transactions.

In this regard, the decision of January 14, 2019, the supervisory board of Vostok Bank (controlled by Kostelman and Morokhovsky, co-owners of the Fozzy Group) is very revealing. They have decided not to credit their own enterprises, but to buy NBU deposit certificates worth 40 million USD! It is very important to note that the value of the assets of Vostok bank at the beginning of 2019 was 300 million USD.

Related: Ukraine receives first IMF tranche under Stand-By program

But now, in accordance with the repayment schedule of previously placed government bonds, the Ministry of Finance paid 2,5 billion UAH (89 million USD) and 423 million USD in January 2019. In 2018, the Ministry of Finance has already financed the state budget by 2,3 billion USD, 3,47 billion US dollars and 503 million EUR due to the placement of domestic government bonds only. When will the money in the real sector of the economy of Ukraine come at 7-8% per annum? When will the mortgage become available? At the same time has, it is high time to think about the inheritance of unfair privatization of the 1990sThe then privatization was carried out not within the framework of the legislation in force, however, the current realities force us to return to the question of compensation.

Related: IMF worsens economic forecast in Ukraine in 2018

But are local oligarchs and owners of financial-industrial groups ready to pay extra for assets in order to remove claims from the Ukrainian society? Let us remember the example of the UK. By introducing an interest income tax on the privatization of large coal mines under the government of Margaret Thatcher, the British treasury received up to 10 billion US dollars! Do you remember Ukraine’s situation in the 90s, when everything was extremely cheap during the mass privatization, and the rule was to buy everything because you would not get the second chance? Here is one illustrative example. At one time, experts from a well-known business publication calculated that in 1999 - 2004, Privat Group (controls thousands of companies of virtually every industry in Ukraine, the European Union, Georgia, Ghana, Russia, the United States, and other countries. Steel, oil & gas, chemical, and energy are sectors of the group's prime influence and expertise. None of the group's capital is publicly traded on any stock exchange – ed.) acquired mining and metallurgical assets of 5 joint-stock companies for $ 35.7 million, then contributed additional $ 331.85 million to increase the authorized funds of these enterprises, and in 2007 sold shares of these enterprises to Evraz Group for approximately $ 3.5 billion.

Related: Strike shutters Ukraine's greatest steel plant ArcelorMittal Kryvyi Rih

Of course, now no one has quick recipes for effective socio-economic reforms and the abandonment of the monopolistic-oligarchic structure. But this does not mean that these problems should not be solved. They are very acute for our country. It is important to capture trends that would lead to progress and sustainable economic growth.

Read the original text at 112.ua.

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

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