Six months ago the IMF broke all credit relations with Ukraine, thus informally informing the international financial society of the danger in investing in the local economy.
The next regular IMF mission, which visited Kyiv in late June and took away a good impression from the changes in the country, will apparently make corrections in investors’ behavior. True, it will no longer be quite the same investor.
The financial crisis in Asia, like everything in this world, has consequences that are not all negative. Starting last autumn the world financial elite has been meeting once a month in order to analyze the past regional shocks and find ways to prevent them. At one of the forums, which took place at Washington’s Kennan Institute, senior expert of the US Department of the Treasury Mark Metush summarized the empirical experience obtained in recent financial battles.
Everyone knows the main instincts of any investor is greed and the fear of losing money. According to the law of the jungle governing the financial markets, investors on their own choose where to put their money. And, although American experts says that the new developing markets are still all very attractive to investors interested in profits, they are not as credulous as they used to be. Traditional risk factors, described in terms of macroeconomic indexes are undergoing much deeper analysis than a few years ago. Investors also take into account the appearance of new hazards, especially concerning the financial market of a country and its legal system.
As to Ukraine, it is a Fourth World country in terms of voluntary capital investment; as before, there is high interest on state securities. The ratio between interest rates and inflation is 73% to 10-12%, a 5-6 times gap, which bears witness to the rapidly approaching state financial crisis.
The second conclusion is closely tied to the first. Today the most attention is paid to the financial sector. Financiers remembered the old truth: weak banks can ruin even powerful and developed countries. This is why there is nothing more important than a secure and durable banking system. To this end, Ukraine needs effective laws to regulate the activity of financial institutions, the ability to evaluate the quality of capital, efficient bank management, adherence to, international financial reporting standards, and, finally, openness concerning information.
Here we have to give the NBU its due. Without its titanic efforts the country’s banking system would have already and more than once killed off the enterprises still hanging on. However, the balance achieved still remains fragile: the NBU does not know what to do with bankrupt banks (there are already around 50), with bad loans made to the government or under government pressure, how to raise banking capital, and cover bank losses. In a word, there are more questions than answers. And what is most unpleasant, Ukraine is forced to inform the world about all its internal problems.
In times of crisis nothing calls forth more suspicion than half-truth and silence. This is the third lesson of the Asian crisis. If the authorities do not want to tell the bad news, no one will believe good news either. Experts know that silence and lie always send rumors spreading. Incidentally, is not the information received from the Ministry of Finance about the government’s decision to table the procedure of granting Ukraine an investment rating is a good reason to start rethinking? Granting the rating, as well as making public the issues disputed in the negotiations with the IMF is nothing more than giving free access to the information about the country.
However, perhaps the most important lesson of the Asian financial crisis is how it demonstrated that the weakness and insecurity of Kuchma capitalism is no less than the various “nationally specific” forms of capitalism in Asia. The cataclysm discredited the capitalist models for one country alone, for internal use only. The hazards were made obvious of building the triangle typical for many countries: the state–banks–industry.
Unfortunately, the Ukrainian authorities still do not understand that this road will lead the country to catastrophe. Horizontally and vertically integrated companies arise like mushrooms after the rain: Naftohaz Ukrainy (Oil & Gas of Ukraine), Ukrainian Polymetals, Ukrainian Coal and other state holding or leasing monopolies. Moreover, the financial crisis could promote the intermeshing of the state and business like in Russia. Future liberalization of market relations could legalize the existing unspoken clan unification of entrepreneurs and strengthen the criminal links between businessmen and law enforcement agencies. The scheme is simple: we help you with money; you help us with privileges, state orders; and state guarantees.
Meanwhile investors, schooled by bitter experience, can see if overcoming the crisis tendencies is true or false. It is obvious for them: if the approvals for granting loans are not commercially justified, they are dictated by corrupt or quasi-corrupt interests. Such loans carry hidden risk factors from the very beginning and with time could ruin a bank, an enterprise, or, finally, even the nation’s whole economy. That is why investors will patiently wait until the law takes over the dictates and contract over private connections and competition, over monopoly and oligopoly. They will wait until the post-Soviet economy accepts the rules of world society considering the profit it may bring, because the advantages of economic and financial integration outweighs its cost.






