World crisis: test on maturity of the Ukrainian economy

The world economic crisis, first signs of which were already traced for attentive analysts three years ago, certainly will result in worsening of indexes of national economy in Ukraine. In fact the domestic economy is highly integrated in the world economy. Approximately 40% of the products produced by the Ukrainian enterprises is exported and over 30% of bank sector belongs to the foreigners. At the same time we should not forget about political opposition which does not allow different organs of power and centers to accept decisions and to operate in coordination and harmoniously.

The Ukrainian economy has the row of “system illnesses”. So let’s proceed to the internal reasons: high inflation (according to some estimation the official level of inflation does not already represent the real state of affairs, as in the consumer sector of economy prices have grown by 35% on the average from the beginning of year), decline of rates of the economy growth, extremely low innovative activity, insufficient rates of realization of projects on the modernization of industry (in particular, in the energy-saving sphere), weak development of production and market infrastructures, constant deficit (and big enough!) of current account of payment balance. Expected “collapse” of the market of real estate, the price decline on export commodities and also the decline of exchange-value of hryvnya will negatively influence on the possibility of borrowers to fulfill their obligations. Consequently, the part of problem assets of banks will grow. In opinion of Standard & Poor’s, in the case of economic recession in Ukraine the level of problem assets can reach 35—50%. In accordance with the data of analysts in the end of the first half-year of current year the external debt of Ukrainian banks reached 35,7 billion dollars, or almost 30% of their combined obligations. Most banks have the negative breaks of short-term liquidity and they extraordinarily depend on new endowments of clients. Liquid assets make only about 12% of combined obligations and don’t cover more than 40% of short-term obligations. The worsening of quality of credit portfolio will become both the result and the reason for decline of rates of the GDP growth; in fact the considerable part of Ukrainian enterprises is unprofitable already today. Ukrainian metallurgical industrial plants already in August decreased the production of rolled metal more than by 20% (as a result of decrease in demand and price decline). Consequently, the currency arrival and tax payments have diminished. If trends do not change, the country can find itself in the economic catastrophe. Other vulnerable sector is construction. Reduction of the programs of crediting and overheat of the Ukrainian market of real estate resulted in the forecast of falling of demand. Presently one third of projects are put on the brakes and another one third risks to become so called “protracted construction”. The situation is complicated because many contiguous industries, foremost the production of construction materials, depend on construction. The rates of falling in construction reached 15%. In August the State committee fixed the sharp decline of real wages by 2,8% (in comparison with July). Such considerable decline of level of profits of citizens (from month to month) has not taken place already for many years... According to the estimation of experts exactly next year the market of real estate of Ukraine will probably show the record falling. The thing that one-room apartment in Kyiv costs more than a three-room apartment in Paris is anomalous. And everyone understands that. The amount of citizens ready to move from regions to the capital and purchase an apartment is miserable. As all, who wished and could do it, have already done it. Besides at the moment the level of wages “at the periphery” approaches to the level in Kyiv and that is the reason for living and working exactly in a region. The state apparatus “collects suggestions”. They are generated by departments, research workers, and experts. High institutions summarize those suggestions and prepare the projects of decisions. The quality of this work is, unfortunately, not so good. In particular, such conclusion can be made at least because the President disagreed with the draft resolution about system measures on strengthening of financially-budgetary discipline and minimization of the negative influence of the world financial crisis on the economy of the country offered by the National Security Council. In author’s opinion, more attention should be paid to the improvement of indexes of foreign trade balance. The volumes of import should be significantly shortened and the volumes of export should at least remain the same (in cost-effective sectors). In this sense it is expedient to resort to the measures of the fiscal regulation (but within the framework of operating international obligations) and also to apply “smart” administrative limitations. Economists know well that a market is the system with “failures” and sometimes it is possible to patch these failures up by anti-market methods… The state has to fix the mechanism of state-private partnership for the realization of breach projects, in particular, in the hi-tech sectors of economy. It is necessary to activate the development of innovative business undertakings. We should form (not on the paper) new scientific field. As far as the raw material economy has exhausted itself… Perspective spheres Ukraine has a considerable potential in the development and sale of software and can operate like Ireland which attracted milliard investments of the USA computer companies for its developments. For such break-through state efforts are needed to be combined with domestic computer companies. Specialists from the National institute of strategic researches think that the most positive influence on the economy growth of Ukraine will be gotten from deeper trade relations with the countries of the EU. According to the data of specialists of the National institute of problems of international safety Ukraine occupies the sixth place in the world for the volume of export of armaments. Enterprises of military-industrial complex (MIC) have better developments than foreigners. It gives a chance to our country to stay in the world market of armaments. Quit big potential and fundamental scientific reserve of the MIC can be used as the factor of technological breach and the lever of state anti-crisis policy. All types of transporting (ground, water and pipeline) have a very high potential. According to the forecasts till 2010 the transit goods traffic through the territory of Ukraine to the countries of Europe will have grown to 158 billion dollars per year (that is almost half of today's domestic GDP). However it is impossible to rich quick and effective growth of transporting complex without radical update of technologies of transporting service of clients. The sphere of tourism and resorts has quite good prospects. People are ready to spend more money on trips and health improvement. The preparation for Euro-2012 is the considerable factor of increase of investment attractiveness of the industry. However now figures are not encouraging: according to the data of the Allukrainian federation of employers in the sphere of tourism of Ukraine tourism provides 6—8% of national GDP in neighbor countries (and in some — to 30%) and in Ukraine it is less than 1%. As to the relative amount of created working places in tourism we fall behind, for example, France in 8 times. But at the same time we shouldn’t forget that the development of this sphere provides not only rapid recoupment of investments, leveling of quality of life in the regions of the country, growth of contiguous industries, but also the replenishment of the currency supplies and the increase of country image.

Serhiy ZAKHARIN