What will help Ukraine and its people survive this crisis? It is not money from abroad or help from our government, but only Faith, Hope, and Love. We have to look for new force fields in them and in ourselves. Quite a few statements to this effect were made on October 27. World Bank Country Manager for Ukraine, Belarus and Moldova Martin Reiser said he is sure that Ukraine is capable of withstanding crises. He said that they regard Ukraine’s positions as very strong ones and that it has a good export potential. But is this enough? Reiser’s reply was less optimistic. In his opinion, Ukraine has to improve its transport infrastructure and carry out structural reforms in the public sector which he regards as too big and in need of upgrading.
World Bank’s recent loan of three billion dollars charges Ukraine with a task. Another thing is whether it will be fulfilled. We have been talking about structural reforms and upgrading the public sectors all 17 years of independence. Now that we are gripped by crisis, carrying out these tasks will not be any easier. The world financial crisis has not reached its peak and the attendant problems may well aggravate, says IMF’s leading economist Olivier Blanchard. He predicts that economic growth will resume in 2010 and the world economic situation will get back to normal in 2011. He warns that the IMF will not be able to provide adequate assistance to all countries on the road of development in the next several months because it does not have sufficient financial resources for this undertaking.
Ukraine seems to be fortunate in this sense — we took out a 16-billion-dollar loan from the IMF, without having to wait in line, so to say. Now the problem is that we need to use it efficiently to boost and upgrade the economy. Of course, this is putting it in general terms. The key question is: How do we do that? Blanchard recommends cutting bank rates. You do not have to be an economist to realize that this will help credit the economy, improve conditions for the growth of businesses, and create new jobs. In a word, this will give a fresh impetus to business activities in all spheres at the time when they are now on a steep downward curve all over the world, including Ukraine.
However, the National Bank of Ukraine (NBU) does not seem to be overly concerned-for good reasons. The inflation rate is soaring (Fitch predicts 25 percent this year) and the national currency exchange rate has dropped by more than one-third in a year (and there is no end to this in view), lowering bank rates sounds somewhat irrelevant. Another thing is that it was the NBU that ruined the exchange rate stability (something it had been so proud of) when it suddenly abandoned the rate of 5.05 hryvnias per one US dollar, although Ukrainians were quite content with it. (This was presumably done under pressure from the government.) For a short while the hryvnia got stronger and then dropped, so we would be lucky to have it settle at UAH 7.00/USD 1.00.
Europe has other problems, but the European governments have a different kind of resources that cannot even be compared to Ukraine’s. To curb the crisis, the European Commission has offered an economy stimulation package worth 200 billion euros. EC President Jose Manuel Barroso believes that this is the best way to help EU citizens restore their confidence in tomorrow and dispel their fears of an approaching deep and long-term recession. This is how optimism and confidence are upheld in Europe.
In Ukraine, we often have to resist the government’s innovative projects, in particular in the monetary sphere, which more than any other depends on people’s confidence. For example, the NBU has once again launched an offensive on currency exchange kiosks.
This move can hardly be described as adequate because it will only create inconveniences for people and will benefit the black currency exchange market. And this comes at a time when public confidence in the government is below zero.
Public response to quite a few statements made by government agencies is often the exact opposite. Thus, the NBU’s Deputy Chairman Oleksandr Savchenko recently assured us that there is no risk of default in Ukraine. He is probably right and the situation is exactly as he says, but “default” is a word that should not be uttered at the National Bank, let alone heard outside the bank. If it is let slip that there will be no default in “at least” the next two years (almost a Freudian slip), any increase in public confidence in the banking system — and public optimism — is out of the question.
Every sign of bona fide optimism in time of crisis should be fostered in every way, although it is increasingly difficult to find such signs amidst plummeting ratings and quotations of Ukraine’s largest and — let’s face it — best businesses. Where is the solution? It appears that now all of us should talk less and work more.
