Excessive Normalization

But let us see if the state apparatus's merits are all that great. Mr. Mitiukov explains: "The year 1998 and early 1999 became a turning point in public debt management. The situation with the public, and above all domestic, debt has been normalized. After an additional conversion of debentures this month, we can be absolutely sure we have canceled any danger of the collapse of the so-called debt pyramid on the domestic market." So "normalization" has been achieved, first, owing to the good will of those who hold governmental debt securities. Could the banks have held out? Probably not. One-on-one talks were held with each bank, and as soon as it was possible to find at least the slightest "liquidity," a "political" decision was made to convert the bonds. (We deliberately say "political" decision, for a pragmatic decision would have meant refusal.) As a result, domestic debt payments have dwindled by Hr 700 million this year. It still remains a secret how many domestic government bonds will be repaid in favor of less healthy banks. Nor is it clear how the healthy banks will bear the "normalization."

The other side of the "normalization" (naturally, in the Finance Ministry's interpretation) lies in the "prospective" reduction of government guarantees and domestic loan interest rates. "The short-term task in public debt management is to slow, as much as possible, the debt increment and to reduce the amount of government guarantees. With this in view, the Ministry of Finance has modeled various forecasts on debt management until 2010. The goal is to bring public debt payments to not more than 6% of GDP, increase the term of debt obligations, and cut interest rates to 20%," the Minister of Finance concluded.

Mr. Mitiukov obviously wants to do his utmost to report on his own successes as soon as three or six months later. But he will be helpless with other ministries and agencies which are obliged, by force of their mere existence, to fulfill quite different tasks. And the Ministry of Finance undertakes to fulfill these tasks tomorrow itself. It may be recalled that a few weeks ago the Ministry failed to sell any government bonds at any price even to the National Bank. This means it is senseless to speak about interest rate cuts. Then, at approximately the same time, the National Bank paternally advised banks to issue loans to coal miners (with the latter suffering net losses of at least Hr 2-3 billion). Then, last week the Cabinet of Ministers promised electric power people to give guarantees for an about Hr 300-million "wage-related" loan (with the latter also running "losses"). What does it all mean? Only one thing: after stopping one debt gap, the Ministry of Finance is ready to make three new gaps. And this does not keep Mr. Mitiukov from asserting that since August 1998 "the Ministry of Finance has stopped utilizing bank resources for large-scale borrowing, thus creating good conditions for the reduction of bank loan interest rates." This may be so. But not because the Ministry of Finance did not want it.

THE DAY'S REFERENCE

Ukraine is supposed to repay a Hr 17.5-billion debt (principle and interest) by the end of 1999. Foreign debts account for $2 billion (Hr 8.7 billion) of this amount. In 1998 total budgetary revenues (the only source of repaying public debts) were Hr 11.4 billion, only 9.8 billion of them having been paid in money. The government's capabilities of debt repayment are limited: borrowing on the domestic market is practically impossible due to non-repayment of treasury-bond debts. In 1998 the National Bank bought out 71% of treasury bonds due to the fact that there was no demand for them. The probability of receiving foreign loans is now very low. What is left is cooperation with international financial organizations.