Playing the big game

As the IMF mission started working in Ukraine, the roundtable “World Economy Development Risks: What Can Ukraine Expect?” was held in Kyiv, formally having nothing to do with the IMF mission. It is, however, easy to draw a parallel. Apparently, the mission and the Ukrainian experts at the Bleyzer Foundation’s office are concerned about Ukraine’s prospects and its role within the international community of nations. The only distinction is that, whereas the IMF has ready provided prescriptions to revive Ukraine, these experts worked them out in the course of an academically correct but principled discussion.

The tone was set by the Bleyzer Foundation director, Oleh Ustenko. He declared that the world financial crisis had ended in triggering currency wars that would last for a couple of years. Ustenko believes that Ukraine will have to brace itself for the heaviest impact of this phenomenon, even though the epicenter is far from this country; that all countries (Ukraine included) will take part in the big game involving the world’s biggest economy (the US); that these players will be held hostage of the game’s outcome. Therefore, says Ustenko, constant national exchange and GDP rate fluctuations will become standard practice in most countries. This, however, may hold negative consequences for Ukraine, considering its bad demographic situation (the steady aging of the population), which is also true of other European countries. Ustenko insists that US economy ranks first in the world, but it is also true that it is constantly aware of another giant, the People’s Republic of China, breathing on its neck, with its 10 percent annual GDP growth. This may well allow the PRC to catch up with the US. In view of this, Ustenko’s conclusion is that Ukraine should act with an eye to Asia. The developing countries, apart from India and China, will show 6-8-percent growth, so Ustenko is convinced this is where Ukraine should direct its exports (considering that Europe is consuming a mere eight percent of global production). In view of this, he believes that the FTA agreement being prepared, with all its huge advantages for Ukraine, means more for Europe than for Ukraine. Ustenko says the Ukrainian government’s focusing on Asia is a sensible and expedient move; that this “doesn’t preclude our European vector.” He says that within the next three to five years Ukraine will have to keep its balance between such strong gravity centers as Europe, Russia, and Asia, and that this is yet another reason for Ukraine to finally implement its program of economic reforms. Ukraine would otherwise expose itself to far bigger risks than meets the eye.

Iskander Khisamov, president of the Reforms Club, believes that Ustenko’s findings could have been tougher by far, considering that the financial crisis in the US is much worse than stated, and that the situation with the world’s power centers will change at a considerably quicker pace. Relying on international experts’ opinions, Khisamov says that China will considerably outperform the US with the next three decades. Under the circumstances, Ukraine should start by clearing the way for foreign inland investors, considering that the current situation leaves them scared stiff: “These investors fear Ukraine’s tax legislation; Ukraine doesn’t have a tax code, but it has customs authorities that are the world’s toughest and most corrupt; [these investors also] fear signing employment contracts, in the absence of a labor code, so there is practically no chance of building such relations under the law. Also, there is the shadow economy…” Khisamov apparently disagrees with Ustenko when he compares Ukraine with a broken-down car, whose engine can’t be started to drive to either Europe or Asia, and that the only solution to this problem is a new engine. He is sure that there are political rather than economic reasons behind all of Ukraine’s domestic problems: “Given our political system — which we have once again shown for the whole world to see during the local election campaigns — any serious reforms are practically impossible… there are only two entities interested in Ukrainian reforms: the political leadership and mid-sized business.” Khisamov doesn’t believe that any reforms will be carried out to rid the foreign inland investors of their fears, and that Ukraine, meanwhile, will remain subject to the world economy’s vacillations; that there will be roundtables held, trying to figure out which country will win: China or the United States.

Academician Valerii Heiets, director, National Academy’s Institute of Economics and Prognostication, is far less pessimistic. He says Ukraine’s economy showed an adequate performance when there were positive world economy dynamics indices, “despite all shortcomings in this country.” He believes that Ukrainian business is showing a perfectly adequate response to all challenges across the world, saying that we have always acted with an eye to the West, while our imports, including high technologies, have kept coming from the East. He disagrees with the assumption that the world crisis is over, insisting that there are still elements of this crisis, even if of somewhat different nature and with different hallmarks, but tending to change on a daily basis. Dr. Heiets says that there is a crisis of growth raging across the world, that there is a struggle for growth underway, and that this growth constitutes a threat for the world economy, even for mankind, considering that this is mainly consumer growth that serves to destroy the environment and the planet’s natural resources: “If this wave keeps rolling over us, the result will be even deeper-reaching controversies. Therefore, we must look for a way out of this situation.” He sees the main threat to Ukraine in the annual competitive ratio loss. He is sure that progressive technologies — primarily in the education, health care, and communications spheres — are the only solution to this problem. He urges the Ukrainian government to be cautious and not allow developed countries to shift their debts to Ukraine, for this would mean falling into the debt trap, what with the IMF mission being on the scene.