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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

Viktor Suslov: “It is now impossible to overcome financial crisis with technical measures”

13 November, 2012 - 00:00

The numerous foreign advisors to the President, Prime Minister, and the government are completely at a loss: do Ukrainian authorities really understand what a financial precipice they are on the brink of? The recommendations made two months ago by a German consulting group for the government seemed to have had the effect of a bomb. At last, the government was given an impetus to start serious work to defuse the crisis. However, our interlocutor, former Minister for the Economy Viktor Suslov, is very skeptical about the Cabinet’s actions in this regard.

One has an impression that only when the Germans, such fine fellows, informed the Premier of the situation and wrote an executive summary, he immediately realized that the country is on the verge of the financial crisis. At the same time everyone fails to recall that the Ministry of the Economy had literally showered the Prime Minister with the materials containing the most detailed analysis of the situation in the country. However, our appeals received no response.

But judging by the Cabinet’s actions, it is not being too responsive to the German consulting group either, is it?

The Ukrainian government is now doing the only thing it can do, which involves new debts, new eurobonds, new loans, and new interests. Unbelievably high, or according to German consultants, “astonishing” interest rates. Well, what does economic theory says about this? The interest is just a share in the profit. And the profit consists of the interest and the entrepreneur’s income. And if the loan interest exceeds the returns on investment, it indicates that in reality there are no projects in Ukraine for which loans can be effectively used. Now look at Russia: the Russian government said it would stop debt accumulation. We are pretty far from that. We are still soothed by some strange idea that Ukraine has a very small foreign debt and almost unlimited borrowing capacity. And now it turns out that servicing Ukraine’s foreign debt alone can absorb all its current budget revenues.

Can you tell us when the critical moment will come and all budget revenues will have to be directed to pay back the debts?

To some extent, this is already happening now. But the situation will sharpen dramatically in August. And yet greater amounts will have to be paid next year. A rather interesting feature of the current policy in general is that the government cannot possibly think about the future. It is fitfully trying to find some kopecks, to extract one, two, or three millions, to increase something and to tighten somewhere. But to no avail. With one billion to be paid every month, knocking out another 50 millions from someone will not solve the problem.

Obviously, the Presidential decrees On Measures to Increase Responsibility for Payments to the Budgets and Earmarked State Funds and On Some issues Pertaining to the Value Added Tax is the display of such policy?

And more than that. These decisions were made in violation of current Ukrainian legislation. But the interesting fact is that the People’s Democratic Party publicly opposed the decree. I do not quite understand why it is taking that turn, for even Anatoly Kinakh, the leader of the Ukrainian Entrepreneurs Union, endorsed the draft. In other words, the measures which are now implemented can hardly protect the economy from crisis. In fact, now that all seems to have been said about the impending disaster, everybody is just waiting patiently for the crisis to burst out: when the National Bank will sell off the rest of its currency reserves, when the time to pay debts comes...

I should mention that the Premier, the government, and the President were duly informed about the imminent financial problems. The Ministry of the Economy suggested changing policy and stopping debt accumulation. We worked out proposals to increase budget receipts and cut government costs. The Ministry came up with an action plan worth of Hr 1.4 billion involving, in particular, accelerated privatization of distilleries, etc. But I have always thought that any stern measures aimed at extracting additional receipts and cutting costs should start with a demonstration of the executive’s attitude. I mean the “budget belt tightening” campaign initiated by the Ministry of the Economy.

The Ministry attempted to set the pace and suggested selling its Salut Hotel and recreation center in Koncha-Zaspa [resort]. Later it turned out, however, that the hotel did not belong to the Ministry anymore, because following the order of one of my predecessors it had been transferred free of charge to a private company “in order to avoid possible losses”. Other ministries refused to sell their property. As for the recreation center, we received a quick offer to transfer it to the State Sport Committee. Finally, we decided not to sell the center altogether.

Or another story, relating to the disbursement of the Cabinet Reserve. Under law, these funds should be used to eliminate the consequences of disasters, emergencies, etc. However, this did not prevent the Prime Minister from initiating the adoption of Resolution No. 1140 to allocate funds for construction and redecoration of apartments owned by the Cabinet. Something like this is now happening to the resources generated from changing depreciation rates. Initially, these funds were designed exclusively for investment. But the Cabinet of Ministers adopts a correcting resolution and Hr 10 million flow again to the Cabinet’s Household Department. All this illustrates the capability of those in power to restrain themselves.

I think that the failure of such campaigns is a significant political event. However, overcoming the financial crisis requires very harsh measures and people’s confidence. This is why I repeat now and then that only a government of people’s confidence, a coalition government will be able to solve the crisis. And the inability of the current government to give up a part of its property points to the fact that the imminence of the crisis has not been realized completely.

And yet, maybe Ukraine will be able to avoid the financial disaster, if the government signs a new agreement with the International Monetary Fund?

In the course of negotiations the IMF proposed that loan programs be approved by Parliament. I think this decision will be very hard to implement, so it is unlikely that Ukraine will receive big money from the IMF. As a matter of fact, it is now impossible to overcome the financial crisis in Ukraine with technical instruments, like regulating the NBU interest rate, changing reserve requirements, etc. The crisis can be defused only by political measures, the most important of which is the formation of a government which has people’s confidence and stable support in Parliament.

Photo:

Viktor Suslov

 

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