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Today, the wealthiest Ukrainians tend to spend their hryvnia savings, fearing high inflation and devaluation of the hryvnia. As the situation is very unsteady, nobody, except the National Bank of Ukraine, tries to predict the hryvnia exchange rate. Chairman of the National Bank Council (NBU) Bohdan Danylyshyn predicts that only by March-April 2018, hryvnia would stabilize. Of course, such an uncertain situation is really worrying. The treasury is emptying, the state debts are steadily growing, but at the panic should be stood down.
The forecasts began to come true; in particular, at the end of the last year, I expected that in 2018 the NBU will have to increase the discount rate at least twice. Many experts did not agree with this view, they say, on the contrary, the interest rates will be lowered. From January 26, the NBU was forced to raise the discount rate by 1.5 percentage points (by 16 %). And what should the National Bank do when inflation increases? I want to remind once again that if the hryvnia depreciates by 1% (against the US dollar), then consumer prices grow by 0.2-0.3%.
In such a situation, Ukrainian authorities should seek free $ 10-12 billion aid from the United States and the European Union by the end of 2018. For the West, this amount is quite small, especially taking into consideration the fact of pumping hundreds of billions of euros into Greece. European Union has a reserve fund of 750 billion euros, including 250 billion euros from the International Monetary Fund. However, instead of carrying out constructive negotiations with our Western partners, our Ministry of Finance is still making decisions on increasing state debt.
It seems like the financial authorities believe that Ukraine just cannot survive without the IMF loans. At the same time, IMF Managing Director Christine Lagarde met with President Petro Poroshenko in Davos. She focused on accelerating the pace of reforms for the sake of economic growth and raising the standard of living of Ukrainians. Reasonably, there is only one way out: Ukraine should involve transnational corporations that re-structure our economy in a new way. This is very important now, as Ukrainian markets suffer a huge deficit of investment ideas, which we could sell to large foreign investors (from China and the US).
But who will fill sell Ukrainian business stories? Of course, our regulated market is very weak and small, but if we look at even low-quality bonded loans of our issuers, we will see a two-digit yield. In 2018, we should increase corporate bond issues, as their attractiveness will increase. The key idea for foreign investors is to trade the rapid growth of Ukrainian bonds.
However, the risks of Ukrainian corporate bonds are quite high (for example, unexpected movements occur quite regularly). Well, there is even nothing to say about the initial public offerings (IPO) of Ukrainian issuers of the recent years. But this fact that causes the greatest perplexity, for example, among Chinese institutional investors, who began to enter Ukraine’s markets. Our Chinese colleagues have already realized that very few people understand how to shape the value of Ukrainian companies and what their market capitalization depends on.
It is high time to raise the financial literacy of a new generation of our leaders. The state regulator should hugely liberalize the entrance conditions of the Ukrainian market. Finally, Ukrainian business should learn from the Chinese how to sell the future and brands. It is high time for a real revolution in Ukrainian organized markets. After all, the onset of even greater shocks in trade and in the economy of Ukraine is only a matter of time.
Ukraine should take this challenge and be ready to realize smart and breakthrough solutions, especially in trade. Nobody will argue with the fact that trade and international trade are the most accessible and effective instruments of economic growth for Ukraine. According to experts, 1% of the growth in foreign trade can result in 1.5-2% of Ukraine's GDP growth and citizens' incomes. With the help of the market mechanisms, trade increases choice for us and contributes to improving the quality of production, conserving natural resources and equalizing the relative wealth of the nation.
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