On Jan. 31, the 40th Global Economic Forum closed in Davos after raising a number of burning questions before the mankind. What should the economy look like after the crisis? How can one feed the planet? How can one preserve the environment favorable for human life? Where can one find money to restore Haiti that has been affected by the earthquake? A total of 2,500 participants from 90 countries – politicians, businessmen, scientists, members of civic organizations, workers of culture – sought answers to these questions.
The question how to build global financial architecture so as to prevent more destructive economic crises from occurring sparked the most intense discussion. The tone to the discussion was given by the new economic program declared by the US President Barack Obama several days before the WEF. It included implementation of wide range of restrictions on banking activity, specifically those pertaining to possibilities of investing money by banks and financial companies, as well as cutting down their amounts and division of commercial and investment operations. Obama stated that big financial institutions will never hold taxpayers hostage, whereas their collapse should nevermore be allowed by the state.
Apparently, Obama’s plan has split the ranks of globalists gathered in Davos. The innovations were especially disliked by bankers and heads of big enterprises. They warned that strict regulation of the world financial system, based on populism, can let down the pace of recovering from the crisis. However, the milieu of big financiers also lacked unity. Before the WEF, the world renowned financier George Soros backed the reforms proposed by Obama.
Speaking about the nature of the current crisis, Soros said that it was a “super bubble generated by the system itself.” In his opinion, regulators and bankers were captivated by the illusion of efficient markets and also blinded by the “ideology of market fundamentalism.” The markets responded negatively to the initiatives of the American president. The stocks of US biggest banks dropped abruptly. The prices for raw materials went down, the dollar’s value grew, whilst the income of the US state obligations decreased.
Ukraine has also presented its plans and problems at the forum. Those were outlined by the winners of the first round of the presidential elections, Viktor Yanukovych and Yulia Tymoshenko, via the television space bridge from Kyiv. Meanwhile, Ukrainian analysts were analyzing the country’s economic prospects in the light of the WEF. Speaking to journalists, the head of the ForexClub Analytical Center Mykola Ivchenko asserted that current fluctuations on the world foreign exchange and stock markets are of speculative character and can hardly lead to a new wave of the world crisis. In his opinion, there are no essential grounds for this, which has been proved by the speeches delivered in Davos and economic recovery indices in the leading countries of the world. Still, the Ukrainian analyst did not rule out that the second wave may rise by the end of this year, or at the turn of 2011, as stopping of stimulating measures to support the biggest national economies slacken the growth. Ivchenko considers that budget deficits in Greece, Ireland, and Spain can also be a risk factor for the world financial stability. In its turn, the second wave may decrease the demand for Ukrainian export.
How will budgetary situation affect Ukraine? Answering this question of The Day, the expert noted that according to the official data, Ukraine’s budget deficit made 12.8 million hryvnias in 2009, i.e., two percent of GDP. Ivchenko went on, “But actual calculations, taking into account the state loans given to the Pension Fund and expenses for bank recapitalization, it will appear that the budget deficit makes six or seven percent of the GDP.” The expert does not expect any significant budget deficit in 2010, according to the official data, in fact he supposes it to make six or seven percent of the GDP. Under these circumstances, Ivchenko considers, it will be nearly impossible to stimulate the economy and implement the investment programs. Ninety-five percent in the expenditure chapter of the Ukrainian budget proposed by the government, but not approved by the parliament, are made by the protected social articles, whereas it does not envisage whatsoever the subsidies for the construction complex and car industry, unlike in other countries.
Therefore the expert is not sure that the 2010 budget will preserve the new social standards. He wonders from where they will be funded, and calls to make a compromise – to allot for these purposes budget sums that would be something average between what was proposed by the government and the money needed to realize the new social standards.
No less important are the rates of exchange in Ukraine. It is a common knowledge that Tymoshenko intends to reinforce hryvnia, and keep its rate exchange on the level 6 – 6.5 to a dollar, whereas Yanukovych is allegedly going to achieve the level of 10-11 hryvnias to dollar by supporting exporters. Ivchenko does not trust these figures. He said that Tymoshenko understands that there are no grounds for reinforcing hryvnia to this level. The expert is also sure that any oncoming president, including Yanukovych, is most of all interested in stable currency and before violating it he will go “to bankers for advice.” Ivchenko predicts that as a result dollar will cost less than eight hryvnias after the elections.
