Oleg Soskin,
Director of Institute of Society Transformation,
Doctor of Economics
FINANCIAL AND FUEL AND ENERGY CRISES IN UKRAINE: NEW OUTBREAK
In spite of triumphant calls of Ukrainian leaders concerning economic growth and in spite of numerous indices, which testify to success of actions of authority, aimed at improvement of economy and living standard, we have a reason to draw another conclusion. An objective analysis of the conditions and the dynamics of economic processes in Ukraine shows that the structure crises are becoming aggravated. Such situation may result in economic recession in the near future. Such crises as socially-demographic, food crises and the crisis of business undertakings are hidden and what is more financial and fuel and energy crises are on the brink of outburst.
The situation at mentioned spheres may become essentially worse and uncontrolled till the end of 2004. The new outbreak of financial and fuel and energy crises will result spreading of negative occurrences. The political force, which will come into power in Ukraine after winning Presidential elections 2004, will have to overcome such difficulties.
It is well-known that financially-monetary stability influences on condition of state economy. The rates of wealth-growth of the citizens of the country and the dynamics of development of private business undertakings depend on the steadfastness of national currency. An increasing of prices on energy and fuel brings to increasing of cost price on production and, as a result, makes worse economic position of enterprises. Price-waves took place in the second decade of September 2004 at energy market of Ukraine. This shows that the government can’t keep stable prices on fuel and oil products. The financial stability has been shaken.
The spreading of financial and fuel and energy crises is caused by the list of external and internal factors.
The external factors, which caused the outbreak of fuel and energy crisis, are the following:
- sharp rise in prices on oil at world markets (the price on oil has had about 80% growth);
- an increase of Russian export duty on oil from August, 1, 2004; untwisting of criminal affair of the one of the biggest Russian companies- exporters of oil – UKOS; value added tax collection for Russian oil and gas, which are exported to Ukraine;
- devaluation of US dollar, which takes place around the world at present time;
- aggravation of national liberation struggle against American imperialism in developing countries (in particular in Iraqi and Venezuela);
- natural cataclysms in oil-extracting countries, where a number of hurricanes caused the decrease of oil extracting, especially on a sea-shelf (in particular USA, Mexico, Venezuela).
The internal factors, which may cause energy and fuel crisis, are:- lack of alternative sources of oil delivery to Ukraine;
- expansion of oil-refining industry of our country by Russian multinational companies, first of all TNK and LUKoil;
- the Ukrainian government is consent for reverse of oil-pine-line Odessa-Brody, which deprived Ukraine of chance to diversify the sources of oil delivery and to diminish the dependence on Russia;
- increasing of energy ratio of GNP of Ukraine.
As for external factors, which may cause aggravation of financial crisis, we consider that they are absent. The outbreak of crisis at financial sector, which took place in September, was caused by internal factors as a result of insufficiently considered financial policy of Ukrainian government.
First of all, concealed devaluation of national currency is taking place in Ukraine at the moment. Starting from 1999 the gap between cash rate and non-cash rate of grn appeared. As it is known, cash rate of exchange of grn has 4% decrease during September. It was caused by injecting of large amount of grn in cash, which wasn’t supported by hard currency and liquid assets. It is clear that such process may cause the rise in prices in 2004.
Secondly, the head of the government Viktor Yanukovich practices pump priming of grn in order to raise his rating during presidential campaign. 1, 1 billion grn per month is needed in order to raise pensions till the living wage. We also should add to that sum subsidies and subventions, which are given to different institutions, while Yanukovich is traveling around regions of Ukraine. Such actions of his may be interpreted as pre-election bribing of wide strata of society.
Thirdly, the deficit of state budget was increased to 7, 4 billion grn in 2004. The government raises internal and external loans on order to stop budget holes. $1, 1 billion was loaned at external financial markets during 8 months in 2004. The Ministry of Finance of Ukraine places large amount of internal state loan bonds. 80 auctions, concerning selling of internal state loan bonds in sum 2 billion grn, has been held during 8 months. According to different forecasts, this year Ukraine will have to pay interests and principal sum of internal and external debt in sum $ 4 billion.
The fourth, the National Bank constantly makes interventions and buys currency, increasing in such a way its reserves, which in September 2004 exceeded $12, 3 billion. It means that by means of buying of hard currency The National bank of Ukraine puts into circulation large amounts of non-cash grn, which turns into cash very quickly. Thus the inflation rate is growing because of great amount of cash in grn.
The fifth, before the elections Ukraine was enveloped in the process of “Great privatization”. Money, which was received after this process, was used for the support of the decisions of presidential candidate Viktor Yanukovich, although they should be invested at the development of Ukrainian economy (for example at the spheres of high technologies and national business undertakings).
What steps will the Cabinet of Ministers of Ukraine take in the near future in order to take control of financial crisis? The government will obviously use the money, received from placing Eurobonds at world markets in order to defray budget deficit. Ukreksimbank, the state institution, has sold Eurobonds in sum $150 million in September and “Naftogaz Ukrainy” is planning to place its Eurobonds in sum $ 700 million. Money, which will be received, will be transferred to the account of Treasury. Thus, they will pass to the National Bank of Ukraine as an increase of reserves.
It is necessary to mention that the most part of Ukrainian economy’s markets is in bad state. The market of soil doesn’t function, stock market is undeveloped, financial market demonstrates signs of weakness, the market of workforce is rather depressed (7 million of Ukrainian citizens, who belong to economically active population, have to work abroad because of the poor level of salaries). Food market is also in critical position.
The government has determined understated prices on grain. According to the forecasts of specialists, the real price on third-class wheat at world markets will total about $250 per ton in winter 2005, while in Ukraine the price is artificially understated to 700 – 800 grn. Thus, the economic competitiveness of our agrarian sector is consciously undermined; the objective economic laws are broken. As it is known there is price parity between ton of oil and ton of grain in world economy. But the government of Yanukovich ignores such laws of balance, interfering in price proportions with a help of administrative methods. As a result we will have a lack of grain in winter 2005 as it was in 2003.
It is necessary to underline that the new outbreak of financial and fuel and energy crises may cause worsening of the crisis of business undertakings, especially small and middle one, and also socially-demographic crisis, which exist in a hidden form. The population of Ukraine has 400 thousands persons decrease every year; natural reduction of them totals 93, 6% and migratory reduction totals 6, 4%. According to optimistic forecasts, the population of Ukraine will decrease to 43, 3 million persons till 2026; according to pessimistic forecasts – to 40, 3 million persons.
We are eye-witnesses of unprofessional actions of Ukrainian government, of its anti-reformatory position and state-socialistic, soviet, directive methods of economic management. Instead of creating favorable conditions for functioning of free business undertakings, Ukrainian authority creates more and more new barriers in the way of market development. Thus, our government should give up saying that business climate is getting better in Ukraine.
Thus, economic growth, which is declared by the Cabinet of Ministers of Ukraine, is based on devaluation and inflation model, but not on such favorable conditions for the development as strengthening of business, especially small and middle one, increasing of national capital and investment activity etc. economic growth is solely based on state economy, which is functioning mostly at the expense of internal and external loans and filling up the budget sphere by non-existent money.
Today, Ukrainian economy is over head and ears in debt. Present situation reminds economic collapse at the end of 1998 – the beginning of 1999, when the rate of grn fell down and chaotic processes began. We won’t avoid recurring socially-economic situation if the Cabinet of Ministers continues such adventurist economic policy instead of making real steps for the improvement of economy. |
[version for printing]