or What money stands behind property in Ukraine
By Serhiy UDOVYK, director, Vakler Publishers
To visualize to scenarios of Ukraine's development it suffices to take
a closer look at Kyiv's statues of Hetman Bohdan Khmelnytsky and professional
beggar-cum-pickpocket Panikovsky [from Ilf's and Petrov's The Golden
Calf]
Currently Ukraine lives according to the Panikovsky standard and the
statue should be placed in front of the Cabinet building, so that the next
IMF mission can attune itself to the atmosphere even before stepping inside.
This might make the negotiating process easier.
A dynamic, active stand is personified by the monument to Bohdan Khmelnytsky,
yet there is no place for it in front of either of the Ukrainian White
Houses.
We must change our paradigm of development. Instead of the current negative
(take away and redistribute) one, we should institute nationwide a positive,
creative one, discarding once and for all the paradigm of constant redistribution
of property, the foundations of which were laid by the Russian Revolution
in November 1917. It is perfectly clear that the existence of property
implies the existence of its owner. When property supposedly belonged to
one and all, every worker would try to steal at least a handful of nails.
Stalin realized that nobody is perfect and on August 7, 1932 signed a law
envisaging prison or even capital punishment for a couple of stolen ears
of wheat. We all know what happened afterward. We can continue distributing
the property left after the USSR's collapse, oblivious of the fact that
what the economists call depreciation of fixed assets is approaching the
point of no return, such that in a few years there will be nothing left
to divide or redistribute.
To do something about it, we must start producing things, and this takes
knowledge and money. It takes capital. The latter is scared witless by
the current regime, and knowledge tends to leave Ukraine, heading for where
it is better appreciated and rewarded. What capital inflow can be expected
under a Draconian system of taxation whereby money is squeezed out using
the difference in government bond rates supported by society's marginal
strata, people who produce nothing except stilted directives? However,
what creative activity there is in Ukraine is aimed at building multi-layered
business structures meant not to produce but to evade the exorbitant taxes.
It would be interesting to know how Bill Gates, starting with $100 and
making $100,000,000, could manage to earn enough to buy a three-room apartment
in today's Ukraine.
The executive and tax authorities should be reoriented toward the positive
aspect. They ought to earn interest not on penalties and economic repression,
but on the growth of the tax base and revenues of enterprises. As it is,
business in Ukraine is playing a cheating transaction game with the state.
And there group psychotherapy, the experience of which shows that such
games lead to degradation unless roles are reassigned among the patients.
There is a lot of rubble to be cleared. Take tourism and its traditional
sky-high profits. Why does it not work in Ukraine? Because foreigners think
it unfair to pay more for the same hotel rooms than the populace (with
process being higher than, say, in Paris). How come in poverty-stricken
Ukraine does leasing premises in Kyiv cost several times more than in Jerusalem
or Toronto? Why do local goods in Poland cost several times less than similar
goods in Ukraine, with the wages showing the reverse ratio? Why is everything
relating to business, given miserable wages, extremely expensive in Ukraine
compared to all Western standards?
There is one answer to all these questions. Because there is a constant
lack of funds in Ukraine.
M2 is the principal indicator of the monetary stock. It amounts to UAH
15,940,000,000, or about $4 billion. And the currency in hands (MO) is
a mere UAH 6,717,000,000 ($1.7 billion). This money does not serve to accumulate
more assets, and nor is it a measure of cost; it is just in turnover. It
hardly suffices to pay taxes in legitimate business, the latter forming
a narrow segment of the economic spectrum. Even considering the other criterion,
the high rate of monetary turnover, it still clear that no edicts and resolutions
can solve the problems of barter and nonpayment crisis. In fact, these
problems cannot be solved even on pain of death. The existing monetary
stock can service 15-20% of the Ukrainian economy. All the rest is in the
shadow economy beyond the state's regulation. The Ukrainian executive should
doff his hat and bow to all those who managed to build this shadow economy,
which alone keeps this country from falling apart, leaving it a chance
to struggle onto the road leading to civilization.
In the West, there is property behind all currencies. In the USSR, legal
tender notes were secured by the all the national wealth and banknotes
(even though formally) by the gold exchange standard. After the USSR's
collapse, inflation, gratuitous transfer of public property, etc., private
ownership emerged, formally making up 60-70% of what is termed general
national property, yet there is practically no monetary stock to back it.
As for the hryvnia, it is kept afloat by the National Bank's meager reserve.
Who is going to take care of emission against Ukrainian property? The
United States, of course. It issues empty dollars to supply our needs (and
not only ours!), receiving goods and services in return. Tangible assets
exchanged for paper, even though secured by our confidence in the US government
(not Ukraine, for there is a very big difference). The Americans are also
careful to take special precautions, demanding that emission be limited
to the US dollar reserve.
There is $460 billion currently in hands, including $150 billion within
the United States. Washington is interested in keeping all those other
currencies weak, so their inflation is higher than the dollar's and bound
fast to it. The armed conflict in Serbia serves to strengthen the dollar
compared to the euro and this fact is finally dawning on Europe. So what
does the Ukrainian Cabinet do? It comes up with a megaprogram extending
to the year 2010. Here the 2010 national income is in terms of US dollars.
Does this mean that we will have reached the dollar zone by that year and
NBU will have become a branch of the US Federal Reserve, reserving the
hryvnia for promotional and collecting purposes, considering that even
now we do not have enough national banknotes (e.g., UAH 6.7 billion divided
by 50 million makes 134 hryvnias per capita, while the existing denominations
total 188 hryvnias: 100+50+20+10+5+2+1)? Thus we can say that the hryvnia
plays a collecting part in the economy for the time being. There are national
currencies behind property in European countries, even if this property
was first created using American dollars. An investment development bank
should be established to issue investment hryvnias. In addition, the National
Bank should issue hryvnias for banks so they can give loans using private
property as collateral at 5-6% annual interest plus service charge. Bank
restrictions should be lifted; our banks can invest up to 25% of the authorized
capital stock, and only then with a special license, which is extremely
difficult to receive. Only then will the Ukrainian banks be able not only
invest in the economy, but also dispatch authorized managers to enterprises.
There are enough people in private business, Parliament, and even in
the ruling bureaucratic structures who have acquired experience without
losing common sense. Should any of the presidential candidates prove capable
of uniting them, forming a single concept of reform, allowing for the requirements
of an information society, he would receive a credit of confidence from
the populace. Without this credit no reform will work. Ever.






