Why Ukraine needs expert advice from the West?

Author : Olexandr Honcharov

Source : 112 Ukraine

In terms of the USAID Project "Transformation of the financial sector", the US Commodity Futures Commission explained main mechanisms and ways to manage the risks
09:45, 16 May 2018

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112 Agency

In the conditions of the global world, more and more factors influence the formation of the economic model of our country, simultaneously affecting Ukraine’s commodity, stock, and labor market. All these markets are very dynamic and interactive. Therefore, it is more and more difficult to analyze the current situation, make the right decisions, and predict new development trends. In this regard, the experience and knowledge of Western colleagues and, first of all, technical assistance to Kyiv from the USAID and the European Bank for Reconstruction and Development (EBRD) are especially valuable for the Cabinet of Ministers and the Verkhovna Rada.

Related: USAID to allocate $125 million for development of Donbas economy

At the same time, the price of mistakes and corruption of top officials and lawmakers sharply increase, and the International Monetary Fund representatives began to more and more often warn about it. So, for example, the creation of the Supreme Anti-Corruption Court (SACS) became the key requirement of the IMF, which is directly tied to the allocation of Ukraine's fifth tranche of 1.9 billion dollars by the end of this year 2018. Also, the World Bank regularly states that the moratorium on the sale of agricultural land costs the economy of Ukraine billions of dollars of lost productivity and deductions to the state budget. Our Western experts see how the profit from the hryvnia devaluation goes into specific private hands, which are very well known by the Ukrainian authorities.

In these May days, our financial and commodity markets have an unsuccessful start after the long holidays; it seems like the current year 2018 will fit into the line of negative financial and economic indicators that the Ministry of Economic Development and the National Bank gave us, namely, weak economic growth. In turn, after a long 9-year growth of the stock market in the US, American leading analysts began to actively warn international markets about the impending new and more powerful crisis, they say, the risks are very high and state regulators will not be able to minimize them.

Related: Prospects of Ukraine's economy: Unemployment, high inflation, and wage arrears

And most importantly, the so-called "bubbles" continue to be inflated. Ukraine is a vivid example of it, as the Ukrainian stock market has demonstrated the largest growth in the world (during this period, the UX index rose from 790 points to the level of 1360)! But in fact, we do not have real liquidity; only some primitive schemes and cartel arrangements.

In terms of the USAID Project "Transformation of the financial sector", the US Commodity Futures Commission explained main mechanisms and ways to manage the risks. However, there is still no legislative base for hedging risks and free circulation of capital in Ukraine because the people's deputies, even under the pressure of American and European partners, refuse to vote for the draft laws "On capital markets and regulated markets" and "On currency". By the way, we traditionally received technical assistance in the preparation of these bills by USAID and EBRD.

Related: Exchange rate for the hryvnia becomes more optimistic

In addition to this, we have an even more dramatic fact. Reduction of costs along with the outflow of capital from Ukraine leads to an increase in the emigration of the most qualified and able-bodied specialists and workers. Yes, now the national labor market and the financial system are very unstable. And, apparently, the Cabinet does not have sufficient understanding and knowledge about these serious risks. Therefore, it is quite easy to inflate a powerful financial crisis, and a financial blow in the global world can be much more dangerous and destructive than any other.

It is time to seriously think about such a key problem: when fighting against the crisis, the problem of financial management is primary in relation to structural changes in the real sector. Or is this problem secondary? Like, first the real sector of the Ukrainian economy is being reformed, and then the stock market and the labor market are changing? I am sure that these spheres are closely interrelated, and it is necessary to solve these problems in a complex. What to begin with? Of course, with direct investment, because the economies of all countries grow at the expense of long investment money. But I have a feeling that the shadow economy in Ukraine has long been adapted to the new old authorities.

Related: Big Mac Index reveals Ukraine’s hryvnia undervalued by 69%

Pay your attention to this distracting maneuver of the head of the Ministry of Social Policy, Andriy Reva, who calls for fight against unshadowing of Ukraine’s economy. Yes, everyone knows that it is too expensive for us taxpayers to manage this struggle of the Ukrainian authorities with the economy's unshadowing. In the first place, representatives of medium and small businesses were disenfranchised in the face of the State Fiscal Service, and especially financial monitoring: unfortunately, more and more often officials are devoting their work to a primitive and creepy witch-hunt. Well, both the population and business needs to be patient.

Indeed, everything is very difficult here. The questions are not easy; one must be able to correctly count and learn from experienced Western leading experts. And yet - what should we do? First of all, we should be consistent and should fulfill the obligations undertaken under the Association Agreement with the EU within the agreed timeframe. Secondly, we should focus on the more developed and advanced markets of the United States, the countries of the European Union and Asia, creating a relevant modern legislative and regulatory framework for capital markets and regulated markets in Ukraine. Third, we should encourage foreign investors to liberal and cheap entry to the Ukrainian market, making it professional and efficient.

Related: Government launches financing of energy efficiency loans

Fourth, the Cabinet of Ministers and the Verkhovna Rada should think about such an indicative fact: 70% of the US GDP is created by the consumer spending. And fifthly, what is most alarming in the near future - this is an increase in the interest rates of the Federal Reserve System of America. The last expected event should be prepared very seriously. After all, if something dangerous happens on the global market, it influences all the regional markets at once. For example, if the US Federal Reserve cuts its balance by $ 600 billion, then $ 3.0 trillion will "disappear" from the markets since the money multiplier is about 5. The Ukrainian market will get a severe beating, I guess.

In conclusion, I hope that together with our Western partners, we will still improve our small and very complex markets, expanding the narrow bottlenecks for entry. Good luck!

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

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