|
Question 1. The US dollar started tumbling rapidly several weeks ago in Ukraine. The government forwarded all questions on revaluation to the National Bank. But still, does the hryvnia need support? Is it profitable today to save money in US dollars?
(Galina Studennikova, Syegodnya Newspaper)
Answer: Theoretically, a more flexible exchange rate controlled within a certain currency band fixed by the National Bank of Ukraine could help level down the inflation pressure caused by the capital inflow and import price hikes. A floating rate is however just one of the necessary inflation reduction tools together with an improvement of fiscal discipline, an increase in the NBU's independence, and control over consumer lending growth rate. As the global dollar rate goes down, the introduction of a floating hryvnia is indeed likely to make the hryvnia stronger against the dollar in the short-term. Most experts believe this measure is necessary although it can temporarily affect the competitiveness of Ukrainian exporters.
Practically, being a monetary policy element this decision is within the competence of the NBU. Independence of the NBU is an internationally recognized principle and an important condition to ensure long-term macro-stability. This might be the reason for the government to forward the question about potential hryvnia revaluation to the NBU.
As to keeping savings in USD, the Foundation does not provide such recommendations. Any investment decision inevitably bears a risk. Apart from fundamental economic factors, the international currency market (and thus the currency exchange rates) is affected by a variety of other unpredictable factors. In other words, it is impossible to foresee what currency is better in the medium-term to keep savings in.
Question 2. Could the Agenda authors comment on the following points: the dilemma of the rate and quality of growth, the dilemma of macro-stability and high development dynamics, as well as the prospect of leaving an imitation growth model and entering a post-recovery growth model?
Could you please comment also on how “dangerous” the consumer boom is in Ukraine?
(V.À. Litvitskiy, Head of Advisors Group for the National Bank Chairman)
Answer: It is well known that an extensive growth, i.e. growth due to the involvement of additional resources into the economic turnover, can ensure a faster effect in some situations than an intensive growth, i.e. the growth due to raising productivity of these resources. In contrast to many developed countries, Ukraine has not exhausted all extensive growth opportunities, e.g. involvement of extra land lots into economic turnover, activation of idle or underused production facilities, increase of employment, etc. Yet, the amount of idle resources has its limits and only higher productivity can be a major growth source in the long-term. This should be the top priority in the development. Consequently, the intensive growth rate cannot remain ever high; however, the intensive model will ensure sustainability of growth and development.
High extensive economic growth rate inevitably runs a risk of economic overheating, when the resources are not enough to satisfy fast-growing domestic demand. It is the situation Ukraine is experiencing today. Production and import growth cannot catch up to satisfy growing domestic demand. It’s a paradox that as the domestic demand booms due to wage hikes, pay-outs of cash to the population, and the consumer lending surge, the economic growth slows down and inflation speeds up. This is another proof that real growth needs not only a demand increase but, firstly, productivity increase.
As to the dilemma of macro-stability and high development dynamics, the answer is strongly connected with the previous one. If high development dynamics is caused by extensive expansion of the resources base in the economy, it will sooner or later lead to overheating in factor markets (labour, land, real estate, power, natural resources, etc.). In turn, this will result in an inflation surge. Thus, this growth will need to be levelled down to prevent hyperinflation and a long-term economic stagnation in future. But if the development dynamics is ensured, in the first line, intensively (raising productivity of production factors), the markets will be under less pressure and sustainable development dynamics can be perfectly matched with relatively controllable inflation. It should be born in mind that even in this case the general attractiveness of the economy grows, the investment boom is in place and assets prices climb. But it entails consumer inflation to a lesser extent.
As to the dilemma of entering an innovation-based growth model, it should be pointed out that any developing economy firstly experiences an extensive growth stage focused on the maximum use of available resources. As extensive growth limits get closer, the leading businesses and industries start entering the intensive growth model focused on using available resources as efficiently as possible. A significant innovative shift towards labour and resource productivity growth starts on this stage. As the primary productivity resource is being used, the further development will need a wider scale of product innovation. But this will require an economy of a completely different quality. In our view, the Ukrainian economy is in transition from the extensive development model towards intensive one, and this process is not over yet. As to the next transition – from intensive to innovation stage – it will require at least 10-15 years of successful development, although innovative development may start earlier in some sectors.
Question 3. Dear colleagues! Could you please explain the advantages of your Ukraine's Economic Development Agenda designed up to 2015 over the programme of the so-called Ukrainian Breakthrough suggested by the government of Yulia Tymoshenko? Thank you!
(no name)
Answer: Our Agenda and the Ukrainian Breakthrough programme have quite a lot of common goals. The Ukrainian Breakthrough was created, however, as a political document. That’s why it is more socially focused. Later it was used as a basis of the program of the current government. Besides, the Ukrainian Breakthrough allows for a wider governmental presence in the economy. Our Agenda is nothing but an economic programme focused on economic development as the basis for country’s welfare growth. It is more developed, prioritized and consistent.
Question 4. Why are there almost no social issues in the Agenda?
(no name)
Answer: It was our reasonable choice not to include social issues in our Agenda. The Agenda has strict economic focus and targets stable long-term economic growth. We are confident that if we all together manage to create a solid economic base any government will be able to address any social problems, that is, instead of dividing the same pie in different ways it is reasonable to make this pie bigger.
Question 5. Is it the programme developed in tandem with Yanukovich's government?
(no name)
Answer: We did not develop any programme for Mr Yanukovich. Our Agenda is the Foundation's viewpoint. It is related neither to any government nor to any political party. We worked with Yanukovych's government on certain areas where our stance coincided. We provided the so-called technological support: we attracted consultants for development of specific plans and programmes. We see such approach as a way to cooperate with any government.
Question 6. Were Ukrainian organizations and experts involved in development of the Agenda? If so, who are they? If not, then why?
(Igor Lutsenko, Ekonomicheskaya Pravda Project Manager, Ukrainskaya Pravda newspaper)
Answer: Indeed, we involved Ukrainian experts in the development of the Agenda. Our governing criteria in the selection of the experts were professionalism and an excellent reputation. We knew that the experts we involved are well-known and reputable in Ukraine. I want to emphasize that while working on the final version of the Agenda, the Foundation sought to incorporate the opinions of the maximum number of experts possible.
However, for the development of the Agenda we could not attract all the experts we wanted. That is why we are planning to arrange an open public debate involving experts, policymakers at all levels, representatives of businesses and the public to listen and take into account all opinions.
Question 7. Ms Izosimova!
Let me compliment you for this professional and high-quality discussion! Economic romanticism and the striving for an ideal programme of economic development bind to freedom of thought and open doors for a new dialogue. However, is the sought-for systemic result likely to be attained without the analysis and assessment of other risks:
1) instability and institutional proneness to conflicts of political regime (power as the most perfect way to create additional value, etc.);
2) moderation of economic development by supernormal shadow economy;
3) prevailing corruption tax imposed on the society;
4) depression of system-forming innovative industries.
(S. Gavrish)
Answer: From the very beginning the Agenda was developed with a view to economic and political reality in Ukraine. Moreover, measures proposed in the Agenda are aimed exactly at overcoming such negative phenomena as the underdevelopment of basic elements of a market economy, excessive barriers to business, and the lack of stimuli to develop innovative industries.
As to instability of goals – we believe that without creating "public demand" for reforms this factor will be hard to overcome. That is why we are going to arrange a wide public discussion of necessary economic reforms and then promote them.
To ensure economic growth on account of an increase of labour productivity, the Agenda proposes to address not only macro-level problems (macroeconomic instability, excessive state ownership, etc.), but also micro-level problems (high administrative burden on businesses, selective law enforcement, excessive protectionism, etc.). These particular problems push the business into the shadows and a systemic corruption. Therefore, to reduce the shadow economy and corruption, there should be a system in place to eliminate these barriers. This exactly what we've tried to reflect in the Agenda.
To attain real results, it is important to avoid scattering resources. Efforts of the authors of agendas and financial support should be focused on the solution of fundamental problems in development which are mainly the absence of conditions for normal operation of the market. Once the basic conditions are created, they will result in the reduction of many negative economic and political phenomena. For example, formation of an active land and real estate market with simple and transparent rules will significantly reduce corruption in this area. Improvement of the tax system and administration will help bring some part of economy out of the shadows and reduce the corruption.
Question 8. My congratulations to the founder and Director of the Foundation!
For the first time in Ukraine since its independence business is making investments in the development of society without seeking any populist effect.
May the Foundation become Ukrainian Heritage or CPS!
Your systemic approach deserves high praise.
Pity, you do not want to start institutional desovietisation.
How will you work with the state administration?
Notwithstanding, bravo, bravo!
(Vira Nanivska)
Answer: We would like to work with the national authorities in two ways.
First, we would like to attract representatives of the executive and legislative branches to participate in public discussions of the economic reform programme. Through organization of the public discussions and the involvement of representatives of the state authorities in such discussions the NGOs and independent think tanks take an active part in the formation of the national agenda.
Second, we will seek to cooperate with the authorities in the areas where our stances agree. As a matter of fact, agreement on certain areas will enable the Foundation to move to practical cooperation with the executive authorities through sharing our practices and resources.
Question 9. The management of the Foundation once again has stated your willingness to work outside of politics. Did you have a feedback from the President of Ukraine, Prime Minister and other representatives of national institutions after such statement was made at the December presentation? What will the Foundation do in case of no willingness to cooperate on their part? Thank you.
(Rimma E. Fil, CEO, Editor-in-chief, Honorable Journalist of Ukraine, Donetskiye Novosti Publishing House).
Answer: Indeed, we want to reiterate that the Foundation for Effective Governance is a nonpartisan organisation and we do not cooperate with any political party. We are focused on cooperation with the Government, parliamentary committees and the President's institute. By developing the long-term economic programmes, we are interested in cooperation with any representatives of the state authorities, experts, and specialists irrespective of their political beliefs.
However, we realize pretty well that successful implementation of long-term economic programmes and reforms are based not only on political will of the state authorities or their agreement on crucially important issues of Ukraine's economic policy, but also on the existence of demand for the reforms from the public. We want to become a kind of a platform for systemic discussions with all civil institutions. We will anyway focus our efforts on this.
Question 10. In the first quarter 2008 the inflation exceeded budget projections designed for the whole year. How can a galloping inflation be avoided? How can price hikes be stopped? How effective can be “manual” methods?
(Galina Studennikova, Syegodnya Newspaper)
Answer: Iinflation issues are in the area of monetary and currency policy, and budget policy. One of the most important tools to cut inflation is to reduce money supply. There are also other, probably less important but operative ways, for example encouraging demand for investment and creating favourable conditions for investment. Now research is in place to learn how the hryvnia rate against the dollar affects inflation and whether hryvnia needs support. In general, a strong peg can encourage a so-called inflation import.
Question 11. The first part of the presentation didn’t say a word about systematic corruption that undoubtedly will reduce the effectiveness of your suggestions to zero. Your agenda is an “ideal gas”. How can it work in concrete historical conditions in Ukraine?
(no signature)
Answer: Other countries making wide-scale changes in their economies also faced the corruption problem. And many succeeded in overcoming it with help of two elements. First, the political will of the government. Corruption fighting methods are well-known, they just need to be consistently realized. The second element is the desire of society to make required changes. Economic growth is a result of joint efforts. Everybody must make a decision: “We want economic development to speed up in Ukraine”.
Question 12. What is the difference between your program and the Blue Ribbon Commission Program? What gives it more teeth (ability to implement the program)?
(no signature)
Answer: These two have a different focus. The Blue Ribbon Commission Program among others focuses on Building a Democratic State (incl. constitutional reform, human rights) and Better Social Policy, not covered by the Foundation’s program. Ukraine's Economic Development Agenda is a comprehensive reform agenda targeting economic growth. Thus, it includes economic reform areas not covered by Blue Ribbon, such as the Management of State-owned Enterprises, the Labour Market, Transportation, and proposes development agendas for several sectors structurally important for the economy (retail, construction, agriculture, innovations, equipment manufacturing).
Ukraine's Economic Development Agenda aims to become a platform for public discussion and consensus (including policy makers, business and experts on main issues of Ukraine's economic development). The Foundation will promote such a discussion with the ultimate goal of creating “public demand” for necessary reforms. We think that this public demand is necessary for successful reforms implementation.
 |
Foundation for Effective Governance
23F Kudrjavska Street Kiev 04053, Ukraine
Reception: +380 44 501 41 00 PR Department: +380 44 501
41 07 Fax: + 380 44 501 41 05
e-mail: feg@feg.org.ua |
|
