After the Long Hryvnia

The May 6 joint session of the NBU and the Ukrainian Union of Industrialists and Entrepreneurs highlighted an interesting trend: these two organizations, which had long held diametrically opposite views on the key economic issues, professed if not unity then a quite similar understanding of economic realities and discussed “the primary tasks of coordinating the joint action plan.”

This bureaucratic parlance, however, clearly implies the considerable distance the two sides — representing not only the NBU and UUIE, but also the Party of Industrialists and Entrepreneurs and Labor Ukraine that form a single parliamentary fraction — will have to cover to achieve that unity. However, under the present economic conditions both the Party of Industrialists and Entrepreneurs and Labor Ukraine see positive dynamics continuing the trends of the past three years. Moreover, they view the current downside also in like manner, that is, as a kind of credit starvation of the economy especially lacking in long-term loans (and this despite the fact that the volume of bank loans in the industry in 2002 was up 35.3% as compared to 2001). Meanwhile, each views the main reasons behind this lasting downturn differently. While UUIE President Anatoly Kinakh spoke above all about inadequate capitalization of Ukrainian banks (4.7% of GDP against 40% of GDP in European countries), NBU Governor Serhiy Tihipko first pointed to the credit risks ensuing from the situation in the enterprises. Although from that point on their reasoning was largely the same, the NBU had the last word in the discussion. Its irrefutable argument was that “today banks are virtually hunting for financially stable borrowers.”

Simultaneously, it was only natural for the issue of NBU refinancing of commercial banks for innovation projects at enterprises to be raised. Notably, this issue was broached by Tihipko himself. Speaking about the fact that the NBU could just as well confine its efforts to its major assignment, that is, supporting the stability of the hryvnia, and ignore everything else (incidentally, the NBU under Viktor Yushchenko did precisely this), he stressed that the NBU cannot but take an interest in the “body of structural reforms,” using for their implementation such a mechanism as the refinancing of innovation projects. However, as Tihipko further explained, the NBU is not interested in the projects as such (this is the responsibility of commercial banks). All it cares about is the repayment of loans. Meanwhile, the NBU sees its role not in imposing on commercial banks the refinancing of certain projects, but in holding talks with them on this issue and encouraging them to understand the projects.

The UUIE tends to address this problem in a more radical way. Among the measures it proposed for improving the mechanisms of refinancing of commercial banks is the draft clause, On Monitoring Short and Long Term Crediting (Refinancing) of Priority Innovation and Investment Projects. In addition, the UUIE offered the bankers its assistance in developing and pushing through the parliament a series of major laws aimed at the protection of creditors’ rights which, as the sides admitted, are blatantly disregarded in Ukraine.