By Iryna Klymenko, The Day
According to National Bank of Ukraine President Viktor Yushchenko, the NBU managed to achieve a certain stability on the financial market during the last ten days. Despite this, recent events on the stock market (hryvnia devaluation, decrease in placing state securities, non-residents leaving the country) could not be left unnoticed. These processes will doubtless influence the general situation in the economy and industry. The Day talked about this with Academician and Director of the Ukrainian National Academy of sciences Institute for Economic Predictions Valery Heyets.
Q: How surprised were you at the recent events on the financial market?
A: It was obvious already in early 1997 that something would happen in the financial sphere. The only question was when, in September, November, or January. We should remember that these are not only the consequences of certain mistakes in macroeconomic policy. The economy was then (and is now to a certain degree) in the situation, where negative changes in a financial sphere were caused by objective processes. At some point we realized that the financial stabilization process should take much time. When results of our research were made public, where we suggested softening monetary policy a little, experts and the press responded negatively, because they thought this would take us back to the policy of the early nineties. But we did not deny the necessity of introducing strict budgetary and monetary limitations. We meant precisely the opposite and only suggested softening them, without losing control over the situation. And I think recent events totally proved us right.
Q: Ukraine has managed to maintain financial stability under conditions of economic stagnation over a long period. Today, industry is about to go bankrupt. And if extraordinary measures are not taken, the financial and real sectors of the economy could become one.
A: Financial stability is different from what we see on the surface: stable prices, stable hryvnia, and so on. These things have other premises, like balance of trade, correlation of nominal and real prices. For instance, we have confirmed that the real exchange rate has not stabilized, although nominally the hryvnia constantly was revalued, which is just as bad as devaluation, because manufacturers estimate their export according to the real exchange rate. Then we state that the difference between trade balance and GDP increased, when nominally it decreased. Under conditions of a free market all its sectors should be balanced. Moreover, we do not take into account such a factor as the labor market. According to our research, under such conditions balance may never be achieved. In other words financial stability in Ukraine has not yet been achieved.
Speaking about possible ways out of the crisis, we do not doubt the necessity of financial stability. We think that the measures taken for that purpose so far are still inadequate. It is important to restructure the economy as soon as possible in order to merge the financial and real economic sectors. Unfortunately traditional methods of restructuring which stress the technical re-equipping of enterprises do not eliminate the threat of financial crisis. In addition, before going this way, we have to solve the problem of balance between the real and financial sectors. So far no attention has been paid to this. I would like to remind you, that back when the first loan was granted by the IMF, a Ukrainian government memorandum stipulated restructuring of the economy, in other words unprofitable enterprise should have been long ago shut down and other corresponding measures should have been taken. However, we have not approached this problem seriously so far.
It is possible that neglecting problems of restructuring is caused by a generally false financial policy and stabilization in terms of their influence upon restructuring by means of privatization. If this was carried out under ideal conditions, the result would probably correspond to the idea. However, the experience of other countries with transition economies shows that inasmuch as the idea of restructuring and stabilization is launched by the state, no adequate reaction from the economy objects could be expected. The supply crisis, bad management and marketing, along with monopolies are all objective obstacles to adapting to the market. At the same time the absence of restructuring mechanisms in view of huge arrears in payments and mutual debts among enterprises makes this a dead-end for the state economy.
Q: Which state organ could be able to carry out restructuring of the economy?
A: We have examined the experience of the countries that have already gone through this stage. And every country suggests its own way of approaching the problem. In Romania restructuring was carried out by the government. In Poland banks restructured over 800 enterprises. In the Czech Republic it was done by investment funds. So far no one in Ukraine has paid adequate attention to the problem, though twice as many enterprises as in Poland need to be restructured. The first step is always the hardest.
Q: What do you think about preliminary election results from the standpoint of the prospects for economic development?
A: As an economist I am sure that sooner or later any Deputies elected to Parliament will come around to understanding the need for reforms. Only in one case it might be two or three years and in another three months. I am convinced that anyone sent to Parliament will be forced to make the decisions that are on today's agenda. In the final analysis, I don't want to loose more years trying to make new political leaders cognizant of the logic of economic processes.
