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What will Ukrainian economy look like after election campaigns in 2019?

Author : Olexandr Honcharov

During the Ukrainian Breakfast at the World Economic Forum in Davos on January 24, president Poroshenko said: “We have a very big danger of populism. There are those who do not understand what this means and declare that we will have a fixed price on certain products for people, lower than the market price ... This is what Nicolas Maduro did in Caracas in Venezuela. " And although the name of the political leader in this context was not called, it is already clear whose presidential economic program he had in mind.
20:46, 30 January 2019

 

Presidential Administration press office


By the way, at the forum in Davos it was noted that the global debt burden already amounts to about 225% of GDP (!), and is now at a higher level than before th'e 2008 global financial and economic crisis. Yes, it is time for our authorities to understand that it is impossible to solve such a big crisis in the economy only with new loans from the International Monetary Fund. Therefore, the technical default and personal budgets of ordinary Ukrainians are topics that will more and more worry us all in the coming 2019. But don’t worry. Remember, in 1947, the United Kingdom declared a default, and in 1971, for the 4th time, the United States did that. And today, almost the main problem of Ukraine is debts.

It is also true that we still have many incompetent and naive people, they sincerely hope for an economic miracle and unselfish help of international financial organizations. Although it’s time for them to realize that, unfortunately, with our top officials the poor become poorer and the rich have a major problem - what to do with the production assets that they own. It is clear that in the current situation they do not need these assets, and there are no buyers for them. When they can pay off their debts is also unclear, and more and more funds are needed to service loans. Well, relax and take it for granted: the elections-2019 will naturally generate new problems and contradictions. And we have to make the absurd attempts to achieve the impossible.

This thought warns us not to try to fit into the context of an already existing economic system, but to resolutely reject the one created earlier. But who will do this? Will he have enough competence and political will? In the meantime, our country goes blindfolded, this is called the deliberate collapse of the economy. And international experience shows that the political leaders who have led it cannot be trusted to exit the economic crisis. The growing negative balance, like a vacuum cleaner, sucks out foreign currency from the Ukrainian economy and decreases the hryvnia exchange rate, and in order to keep the situation, we need new IMF loans and borrowed money from the placement of government bonds. The problem of unemployment is becoming more acute and widening, and labor migration, respectively, is growing rapidly. And, of course, we still have to fully feel the real consequences of this crisis in the near future.

The economic reforms of the Cabinet of Ministers are in fact bright and populist reforms with a foreign accent, the real result of which is not yet obvious, but already very unattractive among Ukrainians. Well, what really happens in Naftogaz and in a number of ministries? And what will the Cabinet of Ministers leave us in 2019 after Groysman’s resignation? Apparently, it will leave us only two ways out of this financial and economic crisis: a bad one and a very bad one.

In the course of the first way out, until the end of 2019, we will face even greater decline in industry, unemployment, impoverishment of the population and growing public debt (the total national debt of Ukraine over the past 2018 increased by 2.02 billion dollars). In the second way, Ukraine will barely survive the default and will fall into the list of bankrupt countries for a long time. Of course, Volodymyr Groysman before resigning will continue to radiate optimism and sow populism at meetings of the Cabinet of Ministers, will try to do something for a few more months, but, as always, he will not do anything. In a word, the result of the work of government will be the same as in previous years: the victory of optimism and populism over common sense.

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Speaking frankly, it seems to me more realistic and economically profitable to announce default until the end of 2019. In addition, our public debt is very unstable today, and capital is moving quite dynamically from Ukraine. Any financier will say when the limit per borrower reaches the top bar, he is forced to either reduce his debt (if he works with a profit, which cannot be said about Ukraine, because the huge budget deficit 2019 is confirmed), or to announce the default. We must be prepared for the worst option. Finally, it is important to recall the prophetic words of US President Richard Nixon, uttered by him in that memorable pre-default August 1971: "Now tell me who benefits from these crises? Not a worker, not an investor, not a true producer of wealth. International currency speculators win ".

This statement of the American President R. Nixon is especially relevant now, since recent events in the global financial markets indicate a high probability of devaluation of the US dollar and the hryvnia. If economic growth in Ukraine does not reach 3-4% by the end of 2019, and if our authorities cannot return foreign investors to the Ukrainian capital markets, cannot restore confidence in the national currency, our balance of payments, then the hryvnia will be greatly weakened. One dollar will cost more than 30 UAH. Accordingly, our economy will receive a serious financial blow, and even in the short term, some improvement in the trade balance will not compensate for the amount of capital withdrawn from Ukraine.

Nowadays the power of Petro Poroshenko has strengthened, this situation remains profitable for him. And despite a bunch of mistakes that the Cabinet of Ministers and the legislators have done, it is still possible with a competent team of technocrats to bring the Ukrainian economy out of failure. And what are the two biggest mistakes they made? First, it is the establishment of an extremely high discount rate of the National Bank at the level of 18%. Judge for yourself. Since its sharp increase, and so far this record rate has not had any effect on lowering the level of inflation and reducing the volatility of the hryvnia.

But in fact, it suppressed the process of lending to the real sector of the Ukrainian economy. That is why it was an undesirable and even very dangerous decision for the markets. Moreover, in my opinion, this is also the completely unprofessional decision. Second mistake is making changes to the Tax Code in order to increase the tax pressure, and not expanding the tax base. It was also the most harmful solution for domestic business and for attracting foreign direct investment. We have an inefficient tax system, but we continue to discuss the level of various taxes rates, without discussing the actual operating system. As a result, we received a significant reduction in revenues to the state budget, and many investment programs are now generally stopped.

Of course, all of our political leaders in power know about such a critical situation in the Ukrainian economy, but our people are not told the truth. Then if the authorities know - why don't they do anything? When will the country's economy start working for our ordinary Ukrainian? That is why the money factor in Ukraine will be the highest rated until the end of 2019. Well, and of course, there will be a lot of populism too.

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