Foreigners will be asked to lend money against collateral of land they can never get
The cabinet has adopted a mechanism of enlisting foreign investment in the agrarian sector and submitted the document as a draft presidential edict for endorsement. The mechanism envisages crediting agricultural producers on the security of land. Agroindustrial complex Vice Premier Leonid Kozachenko sees its implementation as follows: “Over 40% of the land has been covered by official acts; this land is owned by peasants and these acts are securities that can be used as collateral. Banks, in turn, will use these securities to issue their own and will bring them to foreign markets to receive long-range loans.” This sounds good and simple enough. Leonid Kozachenko estimates minimum Ukrainian agricultural needs at UAH 100 billion and thinks that domestic banks will not cope with the task simply for want of funds. The National Bank says the available domestic credit resources amount to a mere UAH 1.5 billion. The vice premier sees the only alternative in borrowing money abroad. In particular, he places great hopes on the German pension fund: “They have money and they can lend it cheap. They will be happy to invest in Ukrainian agriculture.” However, all this is the government’s optimistic expectations. Trading in land is prohibited in Ukraine and the ban will be effective for another two and a half years, and there is a perpetual moratorium on foreign ownership of the land set forth in the land code.
Leonid Kozachenko was reluctant to comment on what would happen if any of the Ukrainian borrowers failed to repay foreign investments received through Ukrainian banks. When posed a direct question, he replied for reasons best known to himself that, first, the countryside will pay off the loans, and second, no one will be interested in taking landas collateral. As always, the government prefers to shrug off the worst case, although such prospects somehow come about more often than not. Granted theoretically: Ukrainian banks find the equivalent of 100 billion hryvnias abroad. However, failing to return even 10% of such loans could well result in the bankruptcy of all the banks venturing to implement the cabinet’s idea. The trouble is that, even if a Ukrainian bank exacts the borrowing farmer’s land collateral, it will not be able to sell that land on the market, since there is no such market, or transfer it to the foreign investor, because this is forbidden under the law.
As for the possibility of lifting the foreign land ownership moratorium, Vice Premier Kozachenko said that “the government will not consider any such possibility. It is simply not possible. Perhaps other governments will propose this, but we can’t and won’t.” Meanwhile, Anatoly Danylenko, chairman of the Derzhkomzem state land committee, meeting with foreign ambassadors at the foreign ministry a month ago, said that the agrarian market situation already requires considering the possibility of improving the foreign investor’s working conditions, meaning land ownership in the first place. “We must allow all wishing to work the land to do so, including foreign capital,” Mr. Danylenko said on that occasion. The cabinet seems to have paid no heed. Also, Ukrainian society, especially the peasantry, is not as yet prepared to work foreign owners’ land.
The absence of transparency in the cabinet-proposed mortgage project makes its implementation unlikely in modern conditions. And it is far from the only obstacle in the way of the presidential edict. Leonid Kozachenko admitted that the Ukrainian lien laws do not answer modern mortgage credit requirements. If a bank determines to exact the borrower’s land, this can be done only in court, after pronouncing that farmer bankrupt. Under the law, such bankrupt borrower’s money and land are to be used to make payment due the hired manpower, after that debts to the budget are paid, and only then comes the private creditor’s turn. Unless the Verkhovna Rada changes this norm, the cabinet’s mortgage idea is doomed.
Derzhkomzem statistics show that the total market value of the Ukrainian arable lands amounts to some UAH 400 billion. Are the Ukrainian farmers stupid enough to let this wealth out of their hands? If only part of this resource could be used as collateral, the Ukrainian economy would certainly receive a powerful impetus; it would be the beginning of its revival. Yet the inert society and weak intellectual support of the agrarian reform have kept this reserve suspended for the past decade. Considering the indecisive executive response to the agrarian market’s needs, there is little reason for sharing the cabinet’s optimistic expectations.
