Former Minister of Foreign Affairs, head of National Bank Council, politician and successful businessman Petro Poroshenko told The Day as he sat counting the beads about how influencial big business is in the incumbent government, how money is made on politics in Ukraine and why he senses a risk of raider attacks.
“EUROPEAN UNION NEEDS TO ‘LET GO’ OF GREECE”
The problem of economic crisis in Greece can not be ignored. Recently an EU summit on this subject was held, today [the interview was recorded on November 3. – Ed.] this question was touched upon at the G 20 summit. Protests are constantly surging in Greece, and the prime minister’s resignation is imminent. What do you think, which lessons should Ukrainian government draw from this situation since it faces the increase in protest spirit inside the country too?
“I think that we need to cognize positive and negative experience before making conclusions. It seems to me that Ukraine also requires system analysis taken not from Bloomberg or Reuters newswire, but our own one, with conclusions and adaptations to Ukrainian reality. And despite the fact that MFA, Department of Economic Affairs, some academic institutions and respected scientists like ones in a group that was initiated by the president and designed for online-watching and reacting at risks, have to do this job, no detailed analysis of conclusions from events in Greece have been made yet. Everyone knows that protests are going on in Greece and this country has an overwhelming debt. Everyone knows that the crisis in Greece and its debt can gravely damage the European financial system and the financial model of the EU functioning, if not ruin it at all. But very few people know the reasons that caused this.”
Do you personally know the answer to this question?
“The reason is simple. If you spend more than you have, prosperity will be over sooner or later. I have analyzed the financial state of Greece’s railroads. If its income equals to 100 million euros and expenses equal to 500 million euros, and the state-guaranteed debt of Greece’s railroad exceeds 13 billion dollars, the country does not need this railroad, or else it is extremely harmful.
“For tax payers and the state it would be cheaper to take each passenger to their destination point by a taxi then to pay for such badly operating system.
“According to British press, an average salary of a Greek railroad worker is 60,000 pounds per year, while in Great Britain it is 30-40 percent lower with more intensive work load. I do not want to offend Greek railroad workers, but they have not earned that much, and neither has their country. And state covered this unearned money by driving itself into absolutely excessive debts that equal to 300 billion dollars today. Now, European tax payers are offered to pay these debts.”
What can you say about the role of the EU in this situation?
“No matter what the G 20 summit or the EU resolves, I will keep to my point of view. By the way, it differs substantially from the decisions made by the countries’ governments. I want to stress that the only possible way out of this situation for Greek citizens, parliament, the EU itself and even for global financial stability is to let Greece leave the eurozone. There is a need to concentrate all intellectual efforts on the process of designing the most painless procedure of withdrawal from the eurozone. And this should have been done a year ago. It was clear back then: Greece would never pay off its debts. The country was caught in a trap. After regaining independence, it would be able to restore its balance of payments and the national economy’s competitive ability by a sharp decrease of the currency value (devaluation). Only those who invested in Greece’s sovereign debt would get hurt, while rank and file Greek citizens would be safe.
“While trying to save Greece, the leaders of the EU are doing a bad service to the European financial system, stability, and what is the most ironic – they are doing a bad service to the Greek people. If this unbearable debt is laid upon Greece’s economy, to pay off this debt, the nation will be trapped in financial slavery for many years without a hope to get out of it.”
“UKRAINIAN LOANS ARE NOT CONSUMED BY SOCIETY”
So what lessons should Ukrainian government draw from this situation?
“The same as their Greek counterpart should. Ukraine lives beyond its means. We are told that in current conditions we have a significantly smaller debt considering our GDP. But the rate at which the debt is growing, and the crises and risks connected with the deterioration of trade conditions for the main items of Ukrainian exports, with the state of government’s inactivity if nothing is done, will surely lead to the conditions close to Greek. In Greece, unemployment today reaches 16 percent. This includes 40 percent unemployment rate among the youth, thus every other young person does not have a job. Crime rates, suicide rates, the number of homeless who went bankrupt in the conditions of the government’s harsh pre-default economy have doubled. And this is just a part of the consequences. The worst thing is that the decision-makers of today will not bear any political, moral, or criminal responsibility. The main blow will be taken by the nation.”
You say that Greeks live beyond their means, and so do Ukrainians. But a regular Ukrainian railroad employee is not paid the same as a Greek one, and our living standards are much lower than theirs. What exactly do you mean when you say that Ukraine lives beyond its means?
“There is substantial difference here indeed. In Greece almost all citizens had access to money that was borrowed, while in Ukraine the loans are consumed not by society. Today the lion’s share of the loan money is spent on constructing inefficient infrastructure projects. And if the country sinks in debt to built ambitious but completely senseless ‘national projects,’ nothing but harm to the whole country will be done. There is nothing ‘national’ about it at all, that is why government guarantees should not be present there.”
Could you give example of similar projects which you believe to be “harmful”?
“I think that government should not provide any guarantees for the construction of electric train line Kyiv-Boryspil. What is necessary is to calculate the economic effectiveness of this project. If it is efficient, business will invest in it. If not, it will be a crime to waste state funds on it.
“By the way, the same is true for most of the so-called national projects of today. They will never prove profitable for state. Instead, the debts which we have to incur now to implement them, will merely kill any hope for the country’s future growth.
“Why, for one, the construction of a railroad station should be financed by the government? Give it to business! Let business calculate the profitableness and threats of this project, and finance it. If there is any threat of loss, business itself will carry this burden. But why a teacher from Ternopil or a miner from Donetsk should pay for the risks undertaken by an obscure bureaucrat without any good reason? And he is not made responsible for this, either. This is the drastic difference between our policy of building up the debt and that of Greece.
“But the consequences for our country are way, way worse, because the functioning model has been perverted from the start.”
So how can everything be put in the proper perspective?
“To efficiently overcome the crises, according to Keynes’ theory, state should meet three criteria. Firstly, state itself should invest when there is no solvent demand, under crisis conditions, when all faith is lost and people keep their cash in piggybanks. Then it is state that has to take measures to start economy working.”
But it looks just as if it fits into Keynes’s theory! You have just given examples of state investments!
“Firstly, state investments should only be made where Ukrainian (or national, according to Keynes) factors are involved. Secondly, the workforce involved in the state-funded projects should also be Ukrainian. People should spend their earnings in the country. And thirdly, the economic model of the functioning of this type of investment should repay the costs over a short term.
“But if state comes out into the market, takes a loan and wastes it, this results in the increase of the debt, and it also kills private initiative by creating competition-free conditions in the market. In today’s Ukraine, contrary to Keynes, state investments do not meet any of these three criteria.”
“THE METHODS THE GOVERNMENT IS USING TO REVIVE THE ‘RAPED’ ECONOMY ARE BARBARIAN”
The government wants to limit the consumer lending. Do you think it is a correct step to take?
“No, I do not think so. I would ban consumer lending of imported goods so that we do not increase the external account deficit. However, we have to increase the domestic demand and the monetary and credit policy of the country has to favor it and create easy access to the resources turning over in the country.
“I think that similar decisions are emotional and short-lived since they have been made without analyzing the serious strategic prospects. The main condition of the economic policy has to have two components. Firstly, there has to be an absolutely specific declared goal. I would formulate it the following way: ‘We guarantee that the goal of our economic policy is this or that specific result (for example, job creation) and we are politically responsible for the achievement of this goal through our economic policy. If we do not achieve it we will be politically responsible for this and should not be in power again.’
“Now nobody has the idea why the reforms are being realized. I will disappoint those who believe that the higher authorities know and understand everything but they are just very busy and never have time to explain what is going on but when they get less busy they will explain everything... Today we do not have a declared goal; however, the reforms to achieve it are being carried through. In such conditions this movement is not just unsystematic, it is absent at all.”
How would you define the goal of the economic policy?
“In my opinion, the key criterion of the efficient policy is creation of high-paid and highly qualified jobs. If someone tells you something else do not believe this person.
“It is not just a declaration for me. This is what I do. Let’s compete in it and then will see what the society likes!”
As a practical businessman, can you say what is happening today with the Ukrainian economy?
“It has been raped and immobilized for a long time. And the methods used to revive it today are just barbarian. On the one hand, the government is reviving the economy by deregulating it and declaring lower tax rates and, on the other hand, it is pulling from the economy the tax ‘whims,’ absolutely unreasonable during the crisis. It reminds of the situation when in a hospital a patient is connected to the medical ventilation apparatus and is being throttled at the same time. It means that our ‘sick’ economy is being treated and killed at the same time, besides, the government expects some result.”
Do you know how to revive the eco-nomy?
“It should be relieved from the excessive tax burden. For example, small or medium businesspeople willing to invest in his business: create new jobs or buy a new production line will be completely ‘ripped off’ and not a single penny will return to the real economy. Fifty percent will be stolen and the other fifty percent will be misused through various corruptive schemes of the so-called national projects.
“However, if the businesspeople invest into their own business development it means that they invest into the real economy development since they control the absence of corruption and their investment contributes to the job creation. So, it means that the businessmen work better than the state and the society should be interested in supporting them by relieving the small and medium-sized business from the profit tax when investing. Thus we will support real businesspeople and not the mythical state represented by the corrupt officials that are absolutely cut off from the society’s needs. By the way, today the society and the state are two absolutely opposite concepts.”
“ALL THE PARLIAMENTARY PARTIES MAKE BUSINESS IN POLITICS”
Does the big Ukrainian business bear influence in the lobby?
“No, it does not. O’Henri once wrote: ‘When asked who the most successful businessmen in the US are I replied: pork sellers. But then I corrected myself: politicians and then pork sellers.’ In our country the politicians have left behind any real businessmen for their income and influence.”
The governing Party of Regions is called the party of big business.
“Dividing business and politics does not mean prohibiting businesspeople doing politics, it means ousting those who have turn politics into business and earn more than any businesspeople do. If you ask me about the political parties as big business tools, all of them, the whole political spectrum of the parliament, make money on the politics better than any business. The interests of this political ‘business’ radically prevail the interests of the small, medium-sized and big business, too. The ‘business’ called politics prevails in our country.”
“WE REALLY NEED TO CONSOLIDATE TODAY”
What recipe would you offer our president to take the country out of the crisis?
“The one our ancestors used at the turn of the 19th-20th centuries. Then the conditions were similar: the society was split, and the economic and political situation was strained… Mykhailo Hrushevsky took the representatives of separate political elites into one ship and set off for Kaniv. In the conditions when nobody could get off the ship he said: we will sail until we work out a common, uniting conceptual position of the state development. Unfortunately, he failed.
“Probably, we should return to it. By the way, the regular voyages from Kyiv to Kaniv are being resumed, so our go-vernment should use this opportunity to finish Hrushevsky’s endeavor.
“We really need to consolidate today. The factors of foreign threats and domestic crisis will help to reveal and unite the resposible politicians.”
The Ukrainian government is trying to maneuver between the EU free trade zone and the Customs Union. Is it skillful enough not to overturn?
“Nothing of the kind, our government does not make any maneuvers. Our government is neither a subject, nor an object but just a toll used by high and mighty in their interests. It has nothing to do with ‘maneuvering’ or the interests of Ukraine.”
Will we sign the agreement on the free trade zone with the EU or not?
“We will sign everything. What does the Ukrainian economy need today? It needs the powerful and solvent demand for the domestic products both inside the country and abroad. I am surprised when the government representatives say: we should increase the production of the plains or something else. For this the banks have to credit these enterprises and we will have an economic breakthrough. This is madness. This is the Soviet model of work. I am saying this not in order to humiliate the USSR’s economic model. It was based on the other declared goal. The normal society aims at competition that stimulates cost cutting and quality improvement; the aim of the Soviet economic policy was the comprehensive employment. By the way, it was achieved. Another point is that nobody cared about where the products went and whether the market needed so many plains, rockets, etc. The goal was to employ everyone.
“So, if Ukraine is going to get back to the Soviet time and choose the model of comprehensive employment we really need to finance separate manufacturers and compensate lending rates to the ‘chosen’ business and liquidate the competition.
“However, if we want to have a normal society we should choose another model of behavior. First, we should just equalize the conditions: relieve everyone from the tax burden. Then the best, those who will make the products of the best quality and price will manifest themselves and enter the market. However, something interesting is happening here. The domestic purchasing power has decreased after the rates and inflation rose, that is why a logical strategic task of new markets access has arisen. For us this market is the one of the EU. We are already present at the CIS market. The maximum we can get from it is the protection from the economic sanctions.”
Does it mean that the Ukrainian business has to be the first “promoter of the European Ukraine”?
“The Ukrainian business has to firstly get rid of the inspections, bribes and so on, and then think over what I have just said. When they do it they will realize that the best anti-crisis policy for Ukraine is the new product markets.
“Personally I participated in the creation of the free trade zone agreement. It is not symmetric! We opened all our markets back at the beginning of the last decade. Now we managed to agree on the new and profitable conditions for us.
“When people say: why do we need Europe, it is in crisis, they do not know where to sell their products and we will come with ours, these people are wrong. Ukraine can sell competitive products since we have the lower cost price and highly-qualified manpower.”
“IT IS TERRIBLE THAT THE POLITICAL ‘BUMS’ HAVE TURNED ENTREPRENEURS INTO PARIAHS IN PEOPLE’S EYES”
You have mentioned inspections, regulations, etc. As a businessman, how would you assess the real conditions for doing business in Ukraine?
“They are uncomfortable, uncompetitive and corrupt. Not only real businesspeople, but real politicians, journalists, teachers, doctors and cultural workers think so. Entrepreneurs (I like this word more than businesspeople) if they are real, are flesh and blood of the nation and they take certain risks. They are not protected when making fair products since in people’s eyes they are pariahs made by the perverted political model. Meanwhile, the political bums maintained by entrepreneurs’ taxes take the audacity to blame them and convince people that this is true. And the people instead of being creatively motivated have to believe it because of this perverted propaganda. This is terrible.”
Are you ready to support the initiative to raise the income taxes in Ukraine taken by the wealthy Americans and Germans?
“I think it is fair, but we should not start with this but make people believe that the taxes they pay will be competently and professionally used in the society’s interests. Only when the power convinces people that it does not steal their money, that there is no corruption during the state tenders and purchases, that it has started with itself and pays more taxes and its representatives have no property or income sources they cannot explain the origin of, only then it has the moral right to address the people asking them to make their obligatory contribution into the society’s development.”
Can you feel the risks of the raider attacks today?
“These risks exist and they will augment. In conditions when people cannot earn their own money by fair work they will try to take somebody else’s property. It will concern all the social groups.
“They should not create anti-raider groups, they have just to assure the security of property, starting with the intellectual one and finishing with its other kinds. The law enforcement agencies have to perform their functions. Then there will be no raider attacks.
“When they create groups and commissions it only means that the law enforcement agencies do not fulfill their functions. When the power is involved into raider attacks nothing can prevent these attacks, neither commissions, nor the laws.”
Does the “orange” team keep in touch now? Can you see any political prospects for any of the former “orange” leaders?
“Of course, it does. However, I can see the prospects when all of us, regardless of the colors get into the ship and compromise on the way to Kaniv.”