The financial crisis breaking out in Russia last week dispersed the remaining illusory hopes for this summer being a "dead season" in the economic domain.
The Russian financial market could be content with the "good news" of IFI $22 billion loan for just two weeks before it started getting feverish early past week, lasting until Friday. Russian stock market trade was stopped several times. The Russian Finance Ministry had to cancel an internal government bonds auction, because yields on certain issues had jumped to 32% and yet there were no bidders. The interbank credit market came to a standstill Thursday as the banks stopped trusting each other. The Central Russian Bank imposed further hard currency sale restrictions. George Soros, this worldwide speculator, described the crisis as being almost at the point of no return.
In his letter carried by The Financial Times last Thursday Mr. Soros made it clear that Russia would not overcome this crisis without $15 billion aid and a 15-20% devaluation of the ruble. Several days later, the Russian government refuted his forecast and declared it would not devalue the ruble. Yet, he had brought this into challenge, so Russians are getting panicky (and foreigners beat them to it!). Despite all Russian TV news bulletins being all out to show the absence of a hard currency sales boom, leading Russian economists are offering their own exclusive devaluation scenarios.
What about Ukraine? Contrary to the official notion of Russia and Ukraine being two independent countries, the international community persists in regarding them as a "single very unreliable region." This approach results from both the foreign investors' attitude to these polities and the similarity of problems facing their economies.
In the first place, the IMF imposed similar political requirements on the Russian and Ukrainian cabinets to receive credit: budget expenditure reductions, tax collection increment, redemption of back wages to budget-sustained enterprises and back pensions, and adjustment reforms. Only a year ago these requirements had a number of distinctions. Secondly, both countries have the same "technical" reason for their crisis: the government's inability to pay its short-term debts (i.e., the toppling of the economic pyramid). Thirdly, both Russia and Ukraine have a deeper reason for such destabilization: a crisis of confidence. Experts believe that the latter circumstance has actually triggered off the Russian market's crisis. And fourthly, the inability to manage one's own economy using economic methods, losing control over the situation, etc.
Most likely, what happened in Russia last week will have most gruesome consequences for Ukraine. Why? Because the Ukrainian government, having developed its own scenario of getting through the crisis, bet mainly on IMF. In other words, by working up the image of cooperation with IMF and World Bank, it counted on increasing the influx of foreign funds in the Ukrainian economy, thus easing pressure on the state budget and monetary market. Now this scenario requires much editing, mildly speaking. The thing is that the Russian stock market collapse makes one strongly doubt the validity of the "IMF Means Confidence" formula, for in Russia this "confidence" supported by IMF money existed for a couple of weeks, not longer. In Ukraine, this "confidence" supported by IMF assent to the EFF loan existed for just a week. The conclusion is very disheartening: supposing that foreign investors no longer trust the IMF, they are even less likely to trust our government.
Meanwhile, Premier Pustovoitenko did his utmost last week to show that he should be trusted by one and all, that he would keep his promises, resorting to nontraditional methods (or very traditional ones, considering Ukraine's recent past) of running state affairs. The media has been saturated with sarcasm about his squeezing out debts, so much so it is time to approach the precedent seriously. Seriously speaking, the Cabinet's campaign looks quite unsavory.
In fact, by his actions the Premier has made it clear that the law does not matter a bit in Ukraine. He used undisguised psychological pressure, humiliation, and threats. And even in this situation, characteristic of any post-Soviet criminal economy, he presented himself in an extremely unfavorable light. Simply because he was ignored. This author will not attempt to forecast the result of his humiliating farce, but one thing is now certain: the sides to the conflict – collectors of debts and debtors – will sooner or later have to reckon with the market laws reading that both government bureaucrats and government-appointment managers must assume financial responsibility for their conduct. In the case of the former, this responsibility means replenishing the national purse, and for the latter, protection against top-level bureaucratic arbitrariness. The fact remains that top-level bureaucrats initiated laws providing for all kinds of exemptions, exceptions, preferences, and privileges, and the entire economy was planned in keeping with such byways, when one's revenues and political support depended on access to such privileges.
An economy based on non-cash payments emerged here as a form of tax evasion, yet this never prevented managers from building their own fortunes. Given a vague pattern of ownership, each and every enterprise was actually controlled by the manager (no matter who might "own" it) and he was never interested in production for long. Most (except a handful working for purely ideological considerations) were only concerned about opening a private bank account abroad, knowing they could be fired any day. In other words, there is only one way to keep them under control, by threatening to deny them the right of property. Last week, this threat was addressed to several managers, although there is no way to tell whether it was due to economic rather than party or personal reasons. Moreover, several persons out of the 3,000 eligible will not set the tune and will never alter the managers' prevailing parasitic mood.
The figures speak eloquently. About Hr 95 million was transferred to the Pension Fund as of Thursday night from some of the indebted managers taking part in the Cabinet's "hostage" conference last week, of which amount only Hr 19 million arrived in hard cash.
Incidentally, there are three traditional ways out of a crisis like the one raging in Ukraine: fresh loans, devaluation, and freezing payments on old debts. The first one does not seem to work. Two more left. But how does squeezing out debts fit into this pattern? You've got me...






