Ukrainian version of “economic miracle”: avoiding default

Ukraine’s president Viktor Yanukovych has dismissed Valerii Khoroshkovsky from the post of the minister of finances and appointed him first vice prime minister instead. “Valerii Khoroshkovsky is the most suitable of all members of government to carry out the tasks, outlined by the president at the recent meeting of the Council of Regions, such as the monitoring of the progress of reforms, controlling the economic block, and developing cooperation with European structures.” This is the comment the Presidential Administration offered to account for the changes.

Political scientists account for the president’s appointment by his hoping for a “miracle.” “They expect and economic miracle from Khoroshkovsky,” says Volodymyr Fesenko, director, Center for Political Analysis “Penta.” Khoroshkovsky is probably believed to be an efficient crisis manager, which he has proven more than once. According to Fesenko, Kliuiev had a role of the working horse in the Cabinet of Ministers, doing all the routine work. Conversely, Khoroshkovsky’s mission is quite different. He must become an “economic miracle man,” says the political scientist.

On Wednesday, Bloomberg published a report to the effect that today Ukraine is on the verge of default, and the only country that fares worse is Greece. Taking this and other international observers’ opinions into consideration, the Ukrainian version of economic miracle, expected from Khoroshkovsky, would be just avoiding the collapse. To achieve this, he needs: (a) to ensure the repaying of outstanding external debt with minimum losses for the country and state budget; and (b) find additional financial resources for social programs before the election, say political scientists. If he manages to do this without losing the electorate’s trust, it will indeed be a “miracle.”

This is no easy task, given the rate at which the National Bank’s gold and currency reserves are dwindling. Also investors, the IMF, the World Bank, and other influential financial institutions have given the red light quite often recently.

According to MP Taras Stetskiv, there is one banal reason for all this reshuffle: a very weak reserve bench. For how else can you account for the regime’s attempt to fill already the third vacancy with the same man: first in the SBU, then the Ministry of Finances, and now the post of the first vice prime minister. “It looks like Khoroshkovsky is being used like a tennis ball, tossed around without rhyme or reason,” says Stetskiv. “I can see the same prospect for both Khoroshkovsky and Kliuiev. One was sent to the National Security and Defense Council, and the other was made vice prime minister and sent to solve the problems in economy and European integration sectors. There must have also been promises of prime ministership at play.”

There is also an opinion that in this way Yanukovych is trying to separate the centers of influence. Kliuiev is most likely to get the security, defense, and law enforcement, as well as foreign economic contacts. “We are getting a governance model which dates back to Kuchma’s style,” said to The Day a source in the Party of Regions. “There is the Cabinet of Ministers, which is virtually subordinate to the president, but there also is the Council for National Security and Defense which by Constitution is an autonomous agency for collecting information, plus an additional tool to manage the situation. Thus, it is a way to diminish the weight of first vice prime minister Khoroshkovsky, who has just in fact started to rule the cabinet. Azarov was just a political figurehead already with Kliuiev in office. He can’t influence any processes. All the problems were settled by Kliuiev.”

However, some political scientists make even bolder assumptions. According to them, prime ministership is far from Khoroshkovsky’s ultimate prospect. He may well succeed Yanukovych on his post. “Yanukovych’s rating is falling, and time may come when he will not be able to win the second tour of the presidential election in 2015. Then the question of a successor will arise. Khoroshkovsky may well succeed Yanukovych – first due to his prime ministership and then, due to his own political activities. This is his main ambition now,” says political scientist Serhii Taran.

For justice’ sake, we must remark that Khoroshkovsky was the most predictable claimant for Kliuiev’s post. As soon as president Yanukovych reassigned the latter to the RNBO, Khoroshkovsky was prophesied to be promoted. The only alternative was deputy head of the Presidential Administration, Iryna Akimova. Two questions were more intriguing: who will occupy the posts of the minister of finance and the minister of economic development and trade? These should be trustworthy people, with whom the new vice prime minister will be able to establish an efficient coordination system. To consolidate the finance and economic block is the only way to meet the challenges which the country is facing today. According to the information, published by Oleksandr Yefremov, these vacancies will be given to the current deputy head of the National Bank of Ukraine Yurii Kolobov (to lead the Ministry of Finance), and a well-known Ukrainian businessman and political figure, Petro Poroshenko (who will lead the Ministry of Economic Development and Trade).

COMMENTARIES

Oleksandr PASKHAVER, president, Center for Economic Development:

“I have no idea why everyone is talking of default. Today I cannot see any reasons to speak about this threat. Let us try and remember how many times over the last three or four years, there appeared talks of default. So what? There is no default. It arises when a member of government, let’s say Greece, says publicly that in case today they don’t pay off certain debts, in a month there will be no money for public spending. But we don’t have anything like this in Ukraine. And as far as Khoroshkovsky’s appointment goes – an appointment of a state official on such a high level presupposes his being able to efficiently manage the country’s finance.

“However, besides purely formal tasks, there are a lot of informal ones. And this informal part is way larger than formal. One man cannot cause a drastic, purposeful change. This complex mission can be carried out by a team with a clear goal and a system of tasks. One person can be more methodical and active in the solution of a certain set of tasks. But overall, only a team led by someone fit to be a historical hero, can change the country for the better.”

Anton FILIPENKO, president, the Ukrainian Association of International Economics:

“There is more than enough ground for declaring default in the country. The first is a menacing trade deficit, which today exceeds 12 billion dollars. The second is the statements made by the International Monetary Fund and the World Bank. They reveal their serious concern and unwillingness to continue extending credits to Ukraine. And the third is the negative tendencies in the development of economy, especially industrial production. The only thing I would like to emphasize is that fortunately we are still far from Greece, Ireland, Portugal, Spain, and Belgium in terms of the sovereign debt. Today Ukraine’s sovereign debt is about 60 percent, whereas in Greece it is 120 percent, in Belgium 110 percent, and so on. And this is one of the key factors in announcing default.

“The solution of these challenges requires changing the entire economic model in Ukraine. Today experts have no more doubts as to its viciousness from social and economic viewpoint, because one family owns 26 billion and another 16 billion dollars, whereas most have to survive on 800 hryvnias a month. This model has absolutely no future because it is contrary to European standards – especially to the standards existing in the Scandinavian countries. That is why the first and foremost task is to review the distribution of property. Maybe we should start with the institute of privatization. Secondly, we do not have a domestic market of our own. This was revealed in the crisis of 2008-09. Thus, the second most important task is to create a domestic market, with a progressive specialization of labor, and the cooperation between regions and industries of Ukraine’s own domestic economy.

“It is possible that Mr. Khoroshkovsky, being a doctor of economy, will really attend to this problem and will be able to eventually solve it, even if it is not quite in the sphere of his competence. This mission lies rather with the president. But maybe Mr. Yanukovych has appointed Mr. Khoroshkovsky to this post exactly with the view of getting help from him here.”

Prepared by Serhii STUKANOV, Donetsk; Natalia MALIMON, The Day, Lutsk, Valerii KOSTIUKEVYCH, The Day, Zhytomyr