The government of Ukraine, always struggling to offset the budget deficit, has at last ventured, for the first time in the years of independence, to ask its citizens for rather a modest loan of 400 million hryvnias. Last Wednesday the Cabinet of Ministers resolved to issue 24-month bearer bonds to be sold on a strictly voluntary basis. The liabilities with a face value of 50 hryvnias and an annual yield of 16% are being issued in eight series, with each next series to be floated only after the previous one has been sold.
Although the state budget envisages the issue of short and medium term government bonds on the domestic market, it does not say that money is to be borrowed directly from the population. The decision to issue this kind of loan well after the budget was adopted can demonstrate an acute need for additional state revenues in view of a not so well balanced financial plan, as well as determination of the government to secure not only political (with the elections coming) but also financial “vote of confidence” from the public at the very beginning of the year.
Experts differ, commenting to The Day on this matter. Prominent economist Oleksandr Paskhaver, president of the Economic Development Center, noting that he speaks as a person who wants to know the degree of public trust in government policies, not as an economist, says confidently that the loan will be a success because the government has been pursuing a sound enough fiscal policy (a relatively stable hryvnia) to believe in this kind of obligation.
Experts at the Institute of Economic Forecasting of the Academy of Sciences of Ukraine note that everything will depend on political and economic stability. Mariya Sokolyk, Candidate of Sciences in economics, told The Day that, according to the institute’s research findings, Ukrainian citizens employed in the shadow economy possess about a billion US dollars, which is incomparable to the relatively small loans given to Ukraine by international lending organizations. In her opinion, half of this amount could be invested in the economy, including the government-issued liabilities.
At the same time, according to Svitlana Shumska, Candidate of Sciences (economics), the loan’s success will depend on three conditions. First, the state should promise to buy out its liabilities at the first demand of an owner. Secondly, the bond buyout should be linked to the level of inflation. And, thirdly, the yield on liabilities should be paid off every quarter. It will be noted that the loan-issue conditions only partially meet these requirements. The treasury liabilities have eight coupons, the premium on which (two hryvnias, which corresponds to an interest of 16% per annum) will be disbursed three months after the date of issue. The issue conditions also say that the bonds’ selling value is to be set by the Ministry of Finance, depending on the date of sales. In all probability, the earlier the buyer makes a decision, the greater will the discount be. In this case the rate of inflation seems to be of no importance. Yet, if this rate exceeds 16%, the buyer could incur a loss.
It seems rather intriguing, in the light of competition on the market of bank deposits where hryvnia rates vary between 18 and 25%, that the above-mentioned resolution should allow the Saving Bank, appointed general issuer of treasury liabilities, to invite other securities traders to float the latter. This opens up opportunities for tampering with the results of this, shall we say, financial referendum. For it may happen that these securities will be bought by banks and other financial organizations (which will be able to secure the highest bond yield for themselves), not the public, while the government will have a chance to claim public trust in its policy. This is why the government, now mostly concerned about promoting its financial liabilities on the retail market, should also take care about the transparent results of this borrowing, the political purpose of which is all too obvious today.
Another point. A Ministry of Finance representative recently told Ukrayinski Novyny that the ministry was planning to issue short-term and medium-term bonds with a yield of 13-15% and 14-14.5%, respectively. According to Minister of Finance Ihor Yushko the ministry intends to earmark the bond-sales money (earned from legal entities) for redeeming the previously-issued securities and offsetting the budgetary expenditures. In other words, this could build another Ukrainian pyramid. Incidentally, it is worth recalling here the headline of a Den article, “Who Is Going to Take the Rap for Budget?” Exactly two weeks later, this phrase turned out to be prophetic for then Finance Minister Ihor Mitiukov.
