Vitaly Lysovenko, director of the public-debt department at Ukraine’s Ministry of Finance, speaking on June 15 at the fifth conference called The Capital Market in Ukraine said the ministry had finished drawing up its schedule of treasury bill auctions.
Thus the ministry is all set to build a new debt pyramid, laying six principles of a new concept into its foundation, perhaps to make it steadier.
The first principle, forecasting, includes, according to Mr. Lysovenko, such a thing as analysis of the macroeconomic situation and fiscal policy, as well as deciding on this basis whether it is advisable to issue government securities. But, since the question is about a schedule of auctions, it can well be supposed that the analysis has been completed and confirmed the advisability of new-generation treasury bills.
Other principles, among them issuing long-term instruments, including those for creditors, establishing the institution of market- makers, world standards, and, of course, transparency, seem likely to come later.
Meanwhile, it is common knowledge that the dismal end of pyramid number one did not augment confidence in the state which is now again going to pass the hat to banks and even to ordinary citizens. This led The Day to ask Mr. Lysovenko the main thing: how is the state going to win back lost trust? Unfortunately, Mr. Lysovenko was at first speaking on the government phone and then, as usual, went to attend a meeting.
Thus The Day was answered by some bankers instead of the ministry official.
Vadym CHANKIN, deputy chairman, board of governors, Finances and Credit Bank:
“Of course, bankers look upon the new treasury bills with apprehension and mistrust. There will be a bankers’ congress on June 30, which will probably give a comprehensive assessment of the situation. But it is clear that last time the banks were diddled: no doubt about it. And we are now unlikely to plunge optimistically into these murky waters. On the other hand, banks sometimes have periods of excessive liquidity, and in these moments they will be using the offered instruments, but only for a short time. Very few can now agree to a long period. A slightly different situation exists as far as the state’s relationship with the people is concerned. The latter might now be a little more credulous than the banks are. Perhaps some will even be willing buyers. But last time both got the short end of the stick. This makes me think the implementation of this program will encounter serious difficulties. It will require a lot of propaganda effort.”
Ihor FRANTSEVYCH, chairman, board of governors, Reiffeisenbank Ukraine:
“I think there will be some demand but no excitement among banks. They will be drawn into this gradually. This is another chance to check on the government. They will invest small change and see what the government will do then. We can hardly expect massive investments, like in 1996-1997, but this market will perhaps restore itself little by little. This is important in principle because it serves as a certain benchmark for the financial market in general and the securities market in particular. The combination of the currency-exchange money market and securities market is an element that marks the degree to which the market in general is developed and an important indicator of financial stability; it also makes it possible to carry out a realistic market-related evaluation of the securities. A normally working market of domestic borrowing helps the government by giving positive signals to foreign investors who earlier might come to the domestic market (I don’t know about currently), of course, taking a currency-related risk. Frankly, foreign investors will respond at all quickly to our government’s new call: they were so taken for a ride last time that the restructuring has hardly made them more confident.
“In a word, the situation is as follows: no one is hungry for treasury bills; there might be some trust, partially, but there is no free money, and one can hardly expect any large amounts of it for the time being.”
Vyacheslav YUTKIN, deputy chairman, board of governors, National Reserve Bank, Moscow:
“There was a very revealing conversation between investors and the President at a meeting of the Consultative Council on Foreign Investment, something we’ve never had before. The understanding the head of state and government ministers showed gives us certain confidence and guarantees. We see that investments in Ukraine are small this year, but they are growing, and this trend is continuing. Despite certain difficulties in foreign funding, the year 2000 could become a turning point in this matter. As to treasury bills, foreign investors’ trust in this market seriously dwindled after Ukraine’s domestic default. To recover trust, the issuer will have to take a number of serious steps, but the main factor is stability of the financial market. Should inflationary expectations exceed the income factor under these securities, nobody will, of course, buy them. There will be real investments in these instruments only after there are some signals concerning the resumption of foreign funding (by the International Monetary Fund — Author ). These things are closely interconnected. If such decisions are made as expected by August or September, this will be a signal for work with the domestic instruments. But if external funding does not resume, the program of internal borrowings will also be in jeopardy. Yet, on the other hand, the financial instruments market indeed lacks this kind of instrument. This is why the market will react to the novelty, although, for want of foreign borrowings, this will be a sluggish market.”
The final dot in this mini-debate by-proxy was put by Anatoly DROBYAZKO , leader of the group of advisors to the NBU governor. Answering The Day ’s question whether the government will opt for increasing revenues and reducing the periods of issue of treasury bills in view of the low level of trust in it, he said: “I think this would be wrong. The government should not switch financial flows over to itself, offering more attractive conditions for T-bill placement. Money should go to the real sector of the economy. The government should offer the worst conditions, say, 14-15% per annum. And if somebody has no place to invest his assets, let him give his money to the government at a low price. He will risk nothing in this case. But if he wants to run a risk, he can extend expensive loans to the real sector. But if the government begins again, as it did last time, to bring up the rates higher than the NBU rate is, this will be wrong.”
INCIDENTALLY
Finance Ministry Press Secretary Iryna BEZVERKHA failed to tell The Day the date of the nearest treasury bill auction and explained that, in contrast to previous years, when the money raised from selling treasury bills was used to finance the budget, now the Ministry of Finance will take part in such auctions only on the eve of major payments to service the foreign or domestic public debt.
