A Billion Dollars
Such is the cost of the rigged elections
Yesterday the International Advanced Study Center was the first to publish statistics addressing the economic aspect of the political crisis that gripped Ukraine after the runoff. IASC experts believe that the damage amounts to a mere 0.5% of the GDP, or over a billion dollars.
Regrettably, the problem isn’t this amount, which is truly insignificant on the national scale. This year has been economically favorable for Ukraine (12% GDP growth, predicted by all experts, has set a record) and this makes it less painful. There is, however, the high risk of the new cabinet adopting a pessimistic scenario for the next year(6% GDP and 9% inflation rate), proceeding from this year’s decline. IASC experts further believe that among the new government’s priorities will be com bating price growth (in view of 11% inflation rate expected in 2005) and lower foreign trade spending, securing stability in the banking sphere, preventing a nonpayment crisis, and adopting a quality budget program.
Their forecasts are especially interesting in the social domain; the new cabinet will retain the previous one’s social commitments, but will be unable to enhance social protection. At the same time, economic growth will be down in 2005, with real GDP dropping to 7%, but investments will be up, allowing to show 7.5 GDP growth in 2006, even with a worse international market situation. The situation with the budget will start improving in 2006, with budget deficit dropping from 3% (expected in 2005) to 1%.
Interestingly, IASC experts’ cautious optimism is not shared by many others. Vadym Pyshcheiko, head of the economy ministry’s economic and social policy department, sent his commentary to The Day previously, addressing, among other things, one of the main problems of the Ukrainian economy: confidence. He writes that the economy is largely formed by expectations, on the part of both the population and businesspeople. The latter’s expectations are noticeably less optimistic. In view of this the author feels sure that investments will be down, which will certainly affect economic growth.
While it is generally agreed that the economy needs investments, experts are divided on whether such investments will take place in Ukraine (although Anatoly Halchynsky, chairman of the NBU board, even predicted an investment boom next year).
These two most painful issues relate to pessimistic business and public expectations. Mr. Pyshcheiko believes that depositors are to blame for the instability of the banking system, whereas grim business expectations can cause an investment crisis, and that its consequences may manifest themselves next year.
In addition, the author sees the highest risk in the new government’s price-containing approach: “Here a very important thing for any government is fighting the temptation to regulate prices using nonmarket methods.” Because after letting the prices go they may turn out uncontrollable.
Which of the two possible governments is preferable in Ukraine under the circumstances? IASC experts proceeded from the assumption that Viktor Yushchenko will win the rerun. However, IASC chief economist Andriy Blynov, when asked by The Day, said the other candidate’s government would show similar indices.
