Ukraine is on the eve of an “economic breakthrough”. This opinion was expressed by the Minister of Economy of the Republic Timofei Milovanov, commenting on his trip to the United States.
“We are on the verge of an economic breakthrough. This was felt in all meetings in the United States. People, business, investors, officials look at Ukraine with interest, and everyone recognizes the ability of the new government to change the country, ”he wrote on his Facebook page.
According to the minister, in order to attract foreign investment and achieve success in the economy, Kiev must fulfill four points. First of all, potential investors care about how the current government of Ukraine is independent in making decisions.
- Minister of Economy of Ukraine Timofey Milovanov
Secondly, Kiev must finally reform the judicial and law enforcement systems, as well as ensure the independence of the judiciary, the minister said.
The third paragraph relates to the fight against “owners of banks that have damaged taxpayers and customers”. Probably, in this case, Milovanov is hinting at the situation around PrivatBank and Igor Kolomoisky, experts say.
Recall that in 2016, the Ukrainian Cabinet decided to nationalize the largest lending institution, which at that time belonged to Kolomoisky and his partner Gennady Bogolyubov. After nationalization, the state increased the bank's capitalization by 155 billion hryvnias (more than $ 6.3 billion at the current exchange rate). It is alleged that this was due to the fact that the founders of the credit organization managed to withdraw funds from its balance sheet to foreign accounts before they lost the asset. Now the IMF is demanding that the state force them to return this money, a dispute between the current and former leadership of PrivatBank is being considered in a British court.
The fourth condition for the inflow of investments into the Ukrainian economy is “the same rules of the game for everyone” and “deoligarchization” of Ukraine, Timofey Milovanov said.
“If we convince the world, then Ukraine will begin to develop rapidly, we will be flooded with investments, and we will finally become successful,” the minister wrote.
At the bottom of the debt hole
The theses set forth by the Ukrainian official are similar to the requirements that the International Monetary Fund imposes on Kiev. About them, in turn, told reporters the first deputy chairman of the National Bank of Ukraine Yekaterina Rozhkova. According to her, the fund from Ukraine needs "confirmation that we are moving as a country through changes." So, among the conditions put forward by the IMF are the fight against corruption, reform of health care, education, land reform and privatization of the public sector. Now Kiev has managed to achieve the confidence of investors and the population in the financial system, as well as to form a trend for inflation reduction, Rozhkova is sure.
- Reuters
- © Gleb Garanich
As the chairman of the National Bank, Yakov Smoly, said in early October, the regulator plans to achieve a 5% inflation rate only by the end of next year.
Meanwhile, according to the State Statistics Service of Ukraine, inflation in the consumer market in September 2019 compared to August 2019 amounted to 0.7%, from the beginning of the year - 3.4%.
“Core inflation in September 2019 compared to August 2019 amounted to 1.2%, from the beginning of the year - 3.3%," the agency notes.
On an annualized basis (since September 2018), the growth of consumer prices in the country amounted to 7.5%.
A huge burden for the Ukrainian economy has become a colossal public debt, which takes up to 40% of state budget revenues to service, such a figure was previously mentioned by the deputy of the Rada from the party “Opposition platform - For life” Sergey Lyovochkin. So, only in the period from August to December 2019, Kiev has to pay about $ 6.6 billion on external and internal debt at the current rate (169 billion hryvnias), despite the fact that in the state budget for 2019 the government allocated incomes of about $ 40 billion (1.03 trillion hryvnia). For comparison, the size of the external debt of Ukraine at the time of August 2019 was equal to 1.25 trillion hryvnias.
To repay and refinance domestic debt, the Ukrainian Ministry of Finance has resorted to issuing domestic loan bonds, which are bought by large banks. But in order to refinance an external public debt, Kiev has to again seek help from its main creditor, the IMF.
At the end of 2018, the fund agreed for Kiev a new stand by credit program in the amount of $ 3.9 billion for a period of 14 months. The Ukrainian leadership managed to get right away only $ 1.4 billion, the republic will receive the remaining funds if it meets the conditions of the fund. Initially, Kiev expected the next tranche from the IMF in May, then in June, as a result, it was postponed until the formation of a new government. The Cabinet of Ministers appeared in August, after which negotiations between Kiev and the IMF intensified negotiations on the next stage of cooperation.
As Prime Minister Aleksey Goncharuk said on October 21, the Ukrainian delegation, which was on a visit to the United States for a week, managed to agree that IMF representatives would arrive in the country in a couple of weeks. The head of the Ukrainian Cabinet expects that a new cooperation program will be agreed at the beginning of November.
- Igor Kolomoisky
- Reuters
- © Valentyn Ogirenko
Meanwhile, in Ukraine, calls are increasingly being made to abandon cooperation with the IMF. Proponents of this point of view declare the inefficiency of the measures proposed by the fund that lead the country not so much to economic growth as to credit bondage. In particular, this opinion is shared by oligarch Igor Kolomoisky. According to him, Ukrainians elected Zelensky the head of state precisely in the hope that he would stop blindly following the recommendations of the fund. In addition, Kolomoisky called for a change in the approach to paying external debt, citing as an example countries that survived the default, but then continued to develop.
A similar view is held by the deputy of the Verkhovna Rada Vadim Rabinovich. He believes that cooperation with the IMF brought Ukraine only losses and plunged the country into a debt hole.
“Just sell it all”
Experts also criticize the economic strategy that the IMF proposes to Ukraine. It should be noted that Kiev is not the only “ward” of the IMF, other countries also receive similar recommendations from the fund: among the “tips” there is almost always a demand for market liberalization, cuts in social spending and privatization of state property. At the same time, the fund little adapts its recommendations to the situation in each individual state.
As Professor of the Faculty of World Economy and International Affairs at the National Research University Higher School of Economics, leading researcher at IMEMO RAS Alexei Portansky noted in an interview with RT, the effectiveness of IMF councils for national economies has been questioned for a long time.
“The fund is both right and wrong at the same time - there are countries that have succeeded with the help of his advice, and there are those who did this without any involvement from the IMF. For example, if we talk about privatization, then after it the efficiency of enterprises usually grows. Therefore, in theory, privatization is good, but it is important that it be carried out in accordance with all the rules, ”the expert explained.
- The main building of the IMF.
- Reuters
- © Yuri Gripas
In turn, the head of the Ukrainian Center for Political and Economic Analysis, Aleksandr Kava, doubted that transferring assets to private hands could act as a universal recipe for success, especially when it comes to current Ukrainian realities.
“The idea of just selling everything that is possible prevails in the country, and then solving problems as they become available, which is absolutely wrong and risky for the country's economy,” Kava said in an interview with RT.
The state’s share in the Ukrainian economy can hardly be called too high, analysts say. As the Ukrainian Ministry of Economic Development and Trade reported at the beginning of 2017, the share of the public sector in the economy in 2016 amounted to 11.1% in total.
For comparison, the US public sector generates approximately 12% of the country's GDP, and this is considered a relatively low proportion of the state in the economy.
At the same time, the Ukrainian authorities are in no hurry to follow the example of the United States in the field of tax reform, experts say.
Recall that in his first year in the presidency, Donald Trump signed a law on comprehensive tax reform, which meant reducing the tax burden for businesses and individuals. This measure was aimed at revitalizing and developing the economy and was one of Trump's main election promises.
The Ukrainian Cabinet also plans to carry out tax reform, but it does not imply a reduction in tax deductions, but only a simplification of the payment procedure.
According to Alexei Portansky, Ukraine cannot afford to reduce the tax burden of the business due to the budget deficit.
“This parameter is also spelled out in the IMF recommendations: the Ukrainian government is not advised to reduce business taxes,” the expert explained.
As for the measures listed by the Minister of Economy of Ukraine, it is impossible to implement them in a short time, says Portansky.
“If in Kiev the economic breakthrough is linked to the fulfillment of the provisions listed by Milovanov, then it must be said right away that these conditions cannot be met quickly. The solution of these problems could stimulate economic growth, but so far no such prospects have been observed, ”said Portansky.
“It is necessary to review the law”
At the same time, according to Oleksandr Kava, the Ukrainian authorities should have initially agreed with the IMF on other conditions of cooperation.
“You need to be able to negotiate with the fund about the terms of financing, and seek out those that would meet the state interests of Ukraine and stimulate economic growth. But so far, most measures have not yielded any results, ”Kava emphasized in an interview with RT.
Reducing the tax burden is not being considered in Ukraine now because of the incompetence of the economic bloc of the government, and the measures promoted by the authorities only harm the development of small and medium-sized businesses, I’m sure Kava.
“First of all, it is necessary to revise the legislation of Ukraine in matters of reducing taxes, as well as introducing state support for those industries that have prospects for growth with an export orientation,” the expert emphasized.
According to him, the statement of the Ukrainian minister about the possibility of an “economic breakthrough” has no foundation.
“There are absolutely no prerequisites for rapid economic growth, on the contrary, Ukraine is in a zone of strong political turbulence and investors are not interested in channeling funds into the Ukrainian economy,” the expert summed up.