If we remember the managerial "spam" of the past few years and a heap of "177 reforms," two of them could be distinguished by their extremely controversial nature and drastic affects on the Ukrainian economy. It is about declaring of the martial law in the country. In February-March 2014, Ukrainian authorities had all the legal powers to impose martial law, and there were more than enough facts of military aggression of the Russian Federation. Moreover, the introduction of martial law then could stabilize the banking system and keep the national currency rate. In addition, such a status would be a fundamental basis for the declaration of a temporary moratorium on the payment of external debts. But then the National Bank (NBU) and the Ministry of Finance were entered by the “shepherds” of the external creditors, and the main task for a belligerent country was completely different: to repay debts and ensure uninterrupted capital outflow from the country.
To please an average Ukrainian, they have created a fairy tale that allegedly 3,500 USD were left on the single treasury account in February 2014, and the country could be saved only by those external creditors. In fact, any economist can tell you that the single treasury account is a flow indicator, not a constant on a specific date. Once, there might be a billion, and after five minutes, ten times more. Or less. And the filling of the treasury account in 2014 gradually leveled off after the first shock caused by political tectonic shifts in Kyiv. And within a few days there were amounts comparable to, for example, 2018 summer balances on the treasury account. But it is not even about that. After all, the state has not only the current treasury resources, but also the gold and foreign exchange reserves of the NBU (which are being formed for a rainy day). So, in March 2014, the NBU gold reserves amounted to 15.08 billion USD, including 1.37 million ounces of gold. This is just $ 1.7 billion less than in October of this year. This money was successfully spent on the return of foreign debts and ensuring the outflow of capital from the country. By the end of 2014, the gold reserves of the NBU decreased to a critical level of 7.5 billion USD, that is, by $ 8 billion, and gold reserves lost even more: from 1.37 million troy ounces to 0.76 million (almost double!).
If martial law had been introduced in February 2014, the wasted $ 8 billion could be used to stabilize the economy, as well as for a soft devaluation of the hryvnia. And as the current statements of the IMF show, cooperation with creditors does not stop at all in the case of introducing an martial law, other lending formats would be used (although all these years the authorities have been convincing us to the contrary).
In addition, the martial law probably would have leveled the Russian inversion in Donbas, in any case, the army would have a more effective countermeasure than the “anti-terrorist operation” mode.
But then martial law was not introduced solely because the new people in the government offices wanted to legitimize their power positions, even though their inaction had led to the loss of part of the country's territories.
At the same time, one right decision could be distinguished. Non-declaration of martial law during Ilovaysk and Debaltseve battles. The Russian Federation then used surrogate forms of aggression and the use of the EaP regime would only aggravate the economic state of the economy, because in the fall of 2014, the gold reserves of the National Bank of Ukraine began to melt like a spring snow. By the end of the year, the country had finally lost its internal reserves and became maximally dependent on external financial injections, and therefore, could no longer pursue a sovereign policy.
In 2015, the interests of the pro-government elites and the interests of the state have coincided, and martial law was not introduced then.
The current situation again brought us back to a state where the political struggle to use controlled chaos for its own purposes overwhelmed not only the church walls, but also pulled national security issues into its funnel.
At the moment, the parametric data of the Ukrainian economy is much worse than in February 2014. Then we were dealing with a short-term behavioral shock of the population and business, and in March it began to decline gradually. But we still had reserves and reserves of strength left over from previous years. Euro 2012 has just come to an end, when multi-billion infrastructure investments poured into the economy. Some of them were simply stolen, but no one has yet abolished the “trickle-down effect” on capital.
The need to attract at least 5 billion USD next year to refinance old debts, and the total debt burden on the budget will be more than 14,3 billion USD or more than a third of the budget revenue. Plus huge migration risks. And what we get is an attempt to impose martial law throughout the country.
By a strange coincidence, announcing martial law in Ukraine coincided with another fall in stock markets in the EU, which occurred as a result of the escalation of the US-Chinese trade war. The fall was recorded in the segment of mining companies, which is a wake-up call for the Ukrainian raw materials economy. The automotive industry is also diminishing. Shares of Thomas Cook fell by 30% altogether, indicating a decline in effective demand and the first signs of an economic slowdown in the Western economy. The shares and another tour operator TUI (-6.3%) have also declined.
Under these conditions, introducing the martial law is a negative signal not only for the economic agents inside the country, but also for the external investors. Martial law is a classic force majeure and, from now on, unreliable counterparties can refer to it as the reason for non-fulfillment of contractual obligations. Moreover, the main Ukrainian ports are in a shaky situation, which could lead to a sharp rise in ship insurance. And the ports take a significant part in our exports flow.
Obtaining bank guarantees and export-import financing in Western banks for Ukrainian enterprises can now also become more complicated, because operations with territories, where martial law is launched, are subject to special reservation and monitoring.
Each election brings us more and more new forms of division of society. Here and now ten regions are under martial law, while the other follows their usual way of life. So far we do not feel much difference, but this is only because the initiators themselves have not yet decided what to do with this “toolkit.”
This column does not necessarily reflect the opinion of the editorial board or 112.International and its owners.