The role being played by debts in the Ukrainian economy can hardly be
overestimated. To some they mean misery, to others a unique opportunity
to build fortunes. The government says it is doing its best to rid itself
and enterprises of their burden. More then one year has passed without
Verkhovna Rada forgiving millions in debts of enterprises under various
excuses. As a result of such Herculean efforts in struggling with nonpayment
Ukraine has sunk so deeply into debt that economic analysts used its economy
to discover a new type in business relationships based on the turnover
of debts and called it a "virtual reality" economy. What is the status
of these debts? What helps and what prevents their accumulation? The
Day turned for an explanation to Dr. Volkhart Vinsentz, member of the
Cabinet's German economic consulting team.
Q: We know that the German consulting team attaches considerable
importance to the problem of overcoming the payments crisis. What recommendations
have you offered the Ukrainian government and how did it respond?
A: Now that's a very long story. We started working in November 1994
and one of the first papers we submitted was about the nonpayment problem.
The report was finished by May 1995. Simultaneously the Cabinet was preparing
measures to overcome the payments crisis. So that was how the Cabinet responded,
although I did not know so at the time.
In our research we proceeded from the following. First, we assumed that
some of the debts accumulated by enterprises were quite normal under a
market economy. I mean commercial loans. In Europe, particularly in Germany
and France, commercial loans make up between 30 and 40% of industrial output.
It should be noted, however, that at the period Ukraine's commercial loans
were way above 30%. Secondly, we objected to giving money to enterprises
so they could pay their debts right there and then. We always insisted
that this practice must be discarded once and for all, because such money
dissipates without any tangible results. An altogether different approach
was required, namely incentives and penalties. The late Vadym Hetman told
me later about a Cabinet meeting he attended together with Mr. Yushchenko.
Yevhen Marchuk was Premier and they discussed whether or not to resort
to an emission to deal with nonpayment. Vadym Hetman read our findings,
so it is just possible that our reasoning proved the decisive argument
against it. After that we can't claim any big successes. There have been
countless presidential edicts and parliamentary resolutions. There was
even a presidential order with Clause 51 dedicated to the issue. Although
the effect of these documents was not obvious, one positive aspect was
that no attempts were made to use emission to eliminate nonpayments.
Why are the loans never repaid? This can be explained in a number of
ways, so what I am about to say perhaps far from exhausts the subject.
First of all, enterprises are instructed (I don't know by whom, maybe by
the central government or regional administrations) to make such-and-such
supplies. Earlier (I don't know about now) the power stations had no right
to cut off consumers in default. We don't have accurate statistics but
I think that in Ukraine, as in Russia, generating and transport companies
provide considerably more services than they are actually paid for. I can
explain this by the fact that the state dominates many such enterprises,
forcing them to make supplies in return for nothing. The second reason
is even more difficult to prove or substantiate. We know that many metallurgical
combines found themselves without current assets to pay for energy supplies.
Then suddenly a firm, trader, holding company, no matter what would appear,
offering electricity in exchange for finished products. This is what we
call barter but carried out as a loan. We also know that such traders are
often based in such combines. Now my assumption is this. Since these enterprises
actually have no money, they are financially dependent on those who supply
them energy. Perhaps these financiers use their economic power to dictate
the terms of production - costs, sales, and so on. Perhaps these people
are also interested in accumulating debts: the more debts the better, since
if and when a given enterprise is privatized it can be taken over without
paying anything, on account of debts. The third reasons is as paradoxical.
We often hear that Ukrainian enterprises do not purport to make profits,
saying that revenues are not as important as the process itself, the fact
that people have work and the enterprise is kept alive. As for profits
and losses, well, what will be will be.
In general, I think that if they really want to solve this problem they
must start by making enterprises truly answerable for their debts. Also,
they must allow enterprises to sell their liabilities. By the way, the
Ukrainian government's debts are now sold in Germany at a 50% profit (compared
to 15% when government securities were issued for the first time). If this
is not done the situation will go from bad to worse and there will be no
end to the process. The two most important principles which we constantly
emphasized in Ukraine are property accountability and trade in debt.
Q: Your analysis seems to proceed from the assumption that Ukraine
is moving toward a market economy and the German consulting team is assisting
in the process. But suppose Ukraine is trying to build a different kind
of economy and that debts in this context are to be regarded as capital,
money, and power. And mind you, this assumption was voiced by Western economists
who identified this kind of economy as a virtual reality one. And so if
this is really what's happening how would you visualize further developments?
You said the situation would go from bad to worse and there would be no
end to it, but there is an end to everything. So what would happen in this
case?
A: If everything keeps on the way it is now, the remnants of your national
wealth will simply be eaten up. In other words, you will ride on your roads
so long as there are roads left and operate your equipment as long as it
works. What has been the result of your government's policy. It is no longer
getting loans from anybody, not from its own citizens or from abroad, except
for some handouts from international financial institutions. Except for
1995, little has changed in this country. This has been going on for eight
years and means an increasing burden on its people. To break out of the
vicious circle of this virtual reality economy, you must close down unprofitable
enterprises. In fact, we have such enterprises in the West, but here, by
operating at full capacity, they do not create value (as they should) but
destroy it.
The idea of the virtual reality economy is that anything can be produced,
things no one needs, and sold at unreasonable prices. However, if these
prices are paid and duly taxed, the state continues to win, and everyone
is happy. But someone has to pay for all this, and people do, paying insane
prices sums for things they will never need. And people want to receive
real wages and salaries. However, at some point this dream world will have
to have a rude awakening.
Interviewed by Iryna KLYMENKO, The Day







