Stability of the nation’s currency is a necessary but not sufficient condition to keep the economic ball rolling. In the developed countries this stability serves as an objective indicator of all the other factors, including balanced interests of small, medium, and big business, their being interested in advancing production and improving its efficiency. Currency stability also shows whether the tax strategy is correct and whether certain industries or sectors are going in the right direction. However, inflation-adjusted GDP is the only general indicator of progress or regression.
Inflation, of course, affects any country’s development. Here the lower the economic indices in the production sphere, the less their susceptibility to inflation.
No examples of the latter can be found in the West today, and we will have to make do with Ukrainian statistics (back in 1990 Ukraine was still regarded as an industrialized country).
The table shows that as the actual GDP lowers so do the absolute (Column 3) and relative (Column 4) inflation rates. NBU financial experts will perhaps attribute such absolute decline to the impact of monetarist methods: attraction of hard currency loans and injections in internal government bonds, thus allowing to bind part of the monetary stock not covered by commodities. This explanation could be accepted if the foreign credit vehicle were in operation beginning in 1992.
At the same time as GPD went down, the relative inflation rate (Column 4) declined 1,743 times. No one will say, of course, that hard currency borrowing went up to the same extent. In other words, inflation is influenced not only by foreign loans — and no so much by them as by GDP which decreased by more than two-thirds, being itself a stabilizing factor; its subsequent gradual decline was restricted by minimal consumer demand and supply of goods in terms of prices, which prevented significant inflation growth.
Thus, real GDP decline (one-third compared to 1990) is being influenced by inflation as well as by a number of other factors, while its impact seems minimal and by no means crucial.
From this it follows that a controlled monetary emission resulting in moderate inflation is quite permissible. The main thing is what this emission is aimed at. Paying debts accumulated by budget-sustained enterprises is out of the question, because using the money in this way will have no economic results. And the same is true of a situation in which all enterprises and industries are given a gulp of oxygen after such emission, for this is no remedy, only a pain-killer that will wear off, leaving them with the same old pains.
Without doubt, in the event of renewed inflation the banking sphere will be the beneficiary where the term of monetary turnover is much shorter than the production cycle. As for authorized banks commissioned to service government investment money, preventive controlling measures are in order to block the road to speculation using such financial resources. The latter must be channeled info expanding hi-tech machine-building and instrument-making infrastructures (e.g., specializing in sophisticated household appliances that are currently imported from the developed countries). This would be reasonable to combine with investments attracted from countries with lower than general European levels (Italy or Korea, for example).
Emission money should be used for investments in specific projects, and this should be done only where and when necessary, proceeding from maximum short terms of implementation. In such cases an emission and resultant inflation would be economically justified. Of course, this would call for coordination on the part of executive authorities, project executors, the National and commercial banks.
Government investments in economic adjustment programs were made even at the worst inflation periods. Now that investment and inflation have been reduced to a minimum, GDP continues on a downward curve due to reasons which the upper echelons pretend not to notice, despite numerous publications in specialized and ordinary periodicals. A stand as good as any, which the Ukrainian people duly appreciated during the parliamentary elections and will without doubt bear in mind during the presidential campaign.
The scarecrow of national currency devaluation and attendant inflation, put up by the National Bank as a shield, makes this institution look like a decisive factor in reviving Ukraine economy. But this is an illusion. Nothing will change unless the Cabinet takes effective measures (which it is not taking).






