An important date for summing up intermediate results – the 25th anniversary of the proclamation of independence – is coming up. Ukraine has managed to establish its own institutions of power in this period, but, unfortunately, most of them are infected with the virus of Kuchmism. Political science dictionaries say that its characteristic features are an oligarchic clan economy; decorative democracy, when elections are an instrument of periodical self-legitimization, not rotation, of power; and total corruption of the governmental apparatus (for details see “Is Kuchmism Really Invisible?” in The Day No.45, August 16).
The 2004 Maidan, an important milestone in the era of Ukrainian independence, cut short the rooting of this system, but Kuchmism has survived and goes on “running the show” now. Ukraine’s third president, Viktor Yushchenko, has been blamed for losing the opportunities to launch systemic reforms in the most important spheres and pursuing a shortsighted and ineffective portfolio distribution policy. At the same time, his term in office saw the greatest investment and consumption boom, a considerable foreign-policy activity, movement towards Ukraine’s EU membership, the 2006 parliamentary elections, and aspiration to adhere to democratic standards.
Mr. Yushchenko’s interview with The Day during the conference “Twenty Five Years after the Belavezha Accords: States, Nations, Borders” in Warsaw focused on the current economic situation, his vision of settling the war with Russia, and other things.
“THE UKRAINIAN TARGET SHOULD BE 7 PERCENT OF THE GROSS DOMESTIC PRODUCT GROWTH”
It is rumored that you may come back as Governor of the National Bank of Ukraine. What measure to stabilize and boost the economy in the current conditions would you propose?
“To begin with, Ukraine has today the best possibilities in the past 25 years to revitalize the economy and foster growth. It is said that the ‘window of fast reforms’ has already closed, but it is possible to reopen it – it’s in our hands. Many are blaming the National Bank for an almost 350-pecent devaluation of the hryvnia in the past two years, but they don’t understand the cause-and-effect relation. The Ukrainian currency fell because, among other things, the state budget deficit had been made up by way of emission for a long time. It’s necessary to stop making a ‘scapegoat’ out of the NBU and to bring a new economic policy into motion, when economic entities will be motivated and trust the market. In this case I would mull over coming back.
“The planned growth rate is 1-2 percent, which is wrong. This increase of GDP is within the limits of an error. The Ukrainian target should be 7 percent of the gross domestic product growth. Yes, it is not so simple, for this requires an infusion of at least 18 billion dollars. To do so, we need to mobilize resources and channel them back into a productive economy.”
“UKRAINE HAS A DEFICIT OF NOT THE BUDGET BUT OF TRUST AND OF A GOVERNMENT-BUSINESS DIALOG”
Where can resources for filling the state budget be taken from?
“The needed resources are available. The Ministry of Finance said recently that the shadow economy accounts for an estimated 67 percent. The gross domestic product is officially 2 trillion 219 billion hryvnias. Legalizing even 10 percent of the economy would bring about 220 billion hryvnias, which is more than the current budget deficit. But the targets should be even higher – 20 and more percent of the legalized economy. When I headed the NBU, the level of the ‘gray economy’ in 1999 was at first 48 percent but then dropped to 32 percent in four months. In other words, we managed to cut it by 16 percent, which made big funds available.
“I mean by this that, in reality, we have a deficit of not the budget but of trust and of a government-business economic dialog.
“In the past few years, the informal sector has been on the rise because it is difficult to pay taxes, register, regulate, and administer payments. Business needs to be motivated – listen to a hundred entrepreneurs, and they will name 10-12 crucial factors that make their work difficult and cause them to go to the gray zone. It is realistic to do 1-4 out of 12 items in a few months, which will allow achieving the abovementioned 20-percent target of legalization.
Photo by Mykola LAZARENKO
“The absence of a state budget deficit would be the first green light to the domestic investor, i.e., the Ukrainian depositor. They have been annually taking about 7 billion dollars from the banking system since 2013. The cause of this is financial destabilization, mistrust towards the country’s economic course, and political crises. We expect the IMF to give us 17.5 billion dollars in 4 years. But it is in our hands to regain these funds by way of institutional reinforcement – it is an alternative resource for the national economy to grow by more than 7 percent. Instead of introducing taxes on deposited dividends, it’s necessary to do just the opposite – to provide new motivations for leaving money behind in the banking system.
“Now about a third way: 12 to 15 billion dollars remain abroad owing to export-import operations and ‘offshorization.’ The proceeds that come back to Ukraine are only 2-3 percent cost-effective, while all the rest remains abroad. We should struggle for these funds and create the conditions when entrepreneurs will not want to hide their money on foreign economic territories.”
“IT IS BEYOND THE IMF’S COMPETENCE TO GIVE INSTRUCTIONS. IT IS UP TO THE GOVERNMENT TO CHOOSE THE MEASURES”
The current leadership of Ukraine considers foreign loans as a crucial factor for filling the budget, but donors, particularly the IMF, are setting their own conditions. What do you think we should do to avoid disastrous results of the fulfillment of these conditions?
“We must know that it is beyond the IMF’s competence to give such instructions as ‘increase the price of hot water, electricity, etc.’ All they are saying is: ‘Draw up a well-balanced national budget so that revenues and expenditures correlate.’ And it is up to the government to choose the measures. It is difficult to add revenues due to fiscal overload. So it’s necessary to cut expenditures, which means to raise water, gas, and electricity charges. In my opinion, raising public utility rates is an erroneous policy because we have not yet solved the abovementioned problem of economic legalization. The ‘aid’ is in our own hands, not in those of foreign creditors.”
“THE BANKING CRISIS COULD HAVE BEEN AVERTED”
Ukraine is celebrating 25 years of independence. You were the president for 5 years, the premier for 2 years, and the National Bank governor for 8 years. Do you think you also share responsibility for the current economic and political situation?
“I think that what I was doing in all my offices, beginning with NBU governorship, helped strengthen the state. It is even hard to recall today what the National Bank of Ukraine was like in 1993, when it blocked all payments. It was a white sheet of paper – there was no credit policy, national money, or security measures of the banking system. Our greatest achievement is that we have established the national banking system. In my view, the history of mistakes began when Russia committed aggression. Banks lost dozens of key branches in the occupied Crimea and the Donbas. This means the loss of hundreds of billions worth assets and liabilities. A time like this needs a special policy. They received ‘resuscitation assistance,’ as is the practice in such cases.”
Is the banking system beginning to revive now?
“Commercial banks deal with national money, and devaluation hinders them the most. If you want new investments, a growing economy, new jobs, and social allocations to the budget, you should begin with sound finances. And now let us make an analysis. What kind of finances did Emperor Nicholas II have during World War One? Why did Stalin carry out a monetary reform as late as 1947? Why did Roosevelt begin to work for the ‘war economy’ after declaring war? Because the most important thing under critical conditions is to keep the money stable without switching the emission machine. The Americans would consign their valuables, Stalin issued a loan that ‘stripped’ everybody, but they did not deal with bogus money. Sound money, stable prices, an effective working economy are the muscles of war, a second front which must in no way be lost. So nobody allowed large-scale devaluation and money forging at the level of an official policy. But our situation is just the reverse.”
“WE ARE WAGING A PATRIOTIC WAR AGAINST RUSSIAN INVADERS”
In what way do you think the Donbas and Crimea conflict should be resolved?
“Let me start with what Aristotle once said: a right definition is, to a considerable extent, the response to a problem. If we were using today a right definition at the level of parliament – that we are waging a patriotic war against Putin’s Russian invaders – the world would be responding to this differently. The West speculates on the definition ‘anti-terrorist operation’ and is ‘washing its hands,’ unwilling to meet the commitments it made. We are told every day that we must observe some agreements with Zakharchenko and Plotnitsky, but we are not saying that the states, which signed the guarantees of Ukraine’s territorial integrity and political sovereignty 22 years ago, must meet their obligations. It is important to use diplomacy and diverse formats of negotiations, but this never works well when the aggression is at its highest. We should speak openly about the military component of our defense which could at least freeze the ‘hot phase’ at the front. This means that we should respond to each attack with a high-tech action – the way the aggression is checked on the Israeli-Palestinian border. And I am convinced that the counties that offered us guarantees must bear a great deal of responsibility now. No economic plans, such as the Marshall Plan, are in the offing, although Ukraine is now performing a pan-European mission, defending Europe’s eastern flank from Russian medieval policies.
“At the same time, we must take a clearly-defined position about the economic policy on the occupied territories, transit of electric power, and export of goods.”
You are saying that high-tech weapons should be given to Ukraine, but Brussels and Washington are afraid to do so, for this will in fact mean direct interference into the conflict.
“This is the crux of the matter of definitions – if we don’t have a war, nobody will interfere into the internal conflict indeed. But if it is a war, it is a totally different matter, all the more so that the guarantee to prevent the loss of our territorial integrity and political sovereignty was written on the highest level.
“In my opinion, the Minsk Agreements are obviously a Russian plan behind which stand major diplomatic efforts of Germany and France. It is a way to evade a serious response to the escalation at Ukraine’s expense. And absence of the US in this diplomatic format is very suitable to that country – it is a good opportunity for it to ‘wash its hands’ and not to observe its guarantees. There is no straight answer to whether it is white or black, but the system of components tells us that it is necessary to update all the processes of settlement and see that the conflict is much deeper than it seems to be.”
