Alexander Belozerov: Marshall Plan will not work in Ukraine
Last week the Ukrainian people again began to be attracted with
a carrot a chocolate candy. At Munich conference western politicians promised the new "provisional government" of Ukraine to provide economic assistance. Naturally, the assistance will be provided only in case of appointment of such a government, which will fulfill the requirements of the IMF and will express readiness to sign the Association Agreement with the EU. Theoretically, such option of development of events is possible: a part of faction of the Party of Regions in Verkhovna Rada may yield to economic, moral and forceful pressure and, for example, approve Poroshenko as the head of the government. The latter was already photographed having a very satisfied look together with the head of the State Department (less happy than before Klichko and Yatsenyk were standing next to him). Let us imagine that it will come true. Will the help of the west be effective? I assert that it will not.
First of all, such course of events would cancel the economic assistance from Russia, namely: the remaining $12 billion credit; $4-5 billion discounts on gas; and much more billions from reconstruction and deepening of economic cooperation with the countries of the Customs Union. Not less than $4 billion from returning of the previous price for gas and approximately $3 billion from the refusal to grant the deferment of payment for gas should be immediately subtracted from the amount of the alleged economic assistance of the west. Limitation of gas supply to Ukraine is possible after the delay of corresponding payments by Ukraine.
Secondly, the credits, provided by the west, will not contribute to the economic growth. It is obvious that it would be more logical for the "provisional government" to use the received money to create the illusion of an abrupt economic improvement. This will mean a rise in consumption, as well as of import with stabilization of the exchange rate. Mainly the workers and the owners of the high-level business will be affected, but on the whole they would not vote in favor of the representatives of the current opposition.
Thirdly, the economy of Europe in 1948, and the economy of Ukraine in 2014 are two big differences. Economic destructions continued in the Western Europe for about 6 years (from 1939 to 1945) and were partially compensated by the accelerated development of science and technology as a result of the war. Destructions and the decline in Europe of those years touched upon, first of all, traditional sectors and objects of infrastructure. Their renewal practically did not require innovation and new knowledge, but needed, first of all, not even money, but just working hands. Unlike the six-year military destruction of the economy of Europe, the economy of Ukraine as of 2014 is destroyed by 25 years of existence in the context of perestroika and economic model of independent Ukraine. In the current circumstances throw in of money from the EU and the IMF will not result in the innovative update of the economy, but in the best case scenario, only in the growth of industries, related to the consumer sector.
Fourthly, in the case of western economic scenario implementation Russia will even more accelerate the processes of substitution of import in, first of all, sensitive for its segments of defense-industrial sector. This will immediately influence workers and shareholders of machine building enterprises of Kiev, Kharkov, Zaporozhye, and Nikolayev and of other cities.
Fifthly, Marshall Plan presupposed reduction of trade barriers between the countries of Western Europe. The corresponding plan for Ukraine will be advertised as the aimed at reduction of trade barriers between Ukraine and the EU, and not between the technologically close former republics of the Soviet Union. Even if the tariffs for all Ukrainian export to the EU will become zero and there will be not export quotas (which will not happen), the differences in the technological standards, and impossibility to certify the goods for the export to the EU will perform the role of export barriers, in particular, for knowledge-intensive goods and for food.
Thus, external parties once again want to impose on Ukraine disadvantageous for it economic models, using lack of professionalism of many officials, who prepare and make decisions, and the significant spread of liberal ideology in its primitive form among the population. I would like to recommend some businessmen-politicians not to participate in the political adventures, but to pay more attention to the quality of goods produced in their enterprises. By the way, today, the full closure of the Mariupol confectionery plant was announced with the emergence of new unemployed people.
And in conclusion, I will say a few words about some of the economic news and statistics, of the last week. In the coming days the National Bank of Ukraine will publish information about the balance of payments for 2013 and statistics of the foreign exchange market, as well as of the exchange reserves for January 2014. These figures will provide an opportunity to assess more accurately the current situation and to understand the destiny of the $3 billion allocated by Russia in December 2013. Further I will speak about the change of the credit ratings of Ukraine, the dynamics of GDP and the industrial production, as well as about the exchange rate.
Continuation of the rebellion means default.
Last week the international rating agencies lowered the commitment ratings of Ukraine in foreign currency. The long-term rating by Moody's was lowered by one level from Caa1 to Caa2 with the negative forecast of rating change. The long-term rating from Standard & Poor's was lowered by one level from B- to CCC+, and the short-term rating was lowered by nine (!) levels from B to C (with a negative projection as well). This means the extremely high possibility of default of Ukrainian government in European bonds already this year. There is no any conspiracy theory in this decision. Changes of credit ratings are carried out in accordance with the internal procedures in credit agencies, and decisions that are made depend, first and foremost, on the intermediate judgments during the analysis.
In this case, such a decision means that:
* the possibility of nonreceipt of the new credit tranche from Russia is estimated to be very high;
* in case of nonreceipt of credits from Russia the Ukrainian government with a very high probability will declare default already this year;
* the probability of obtaining credits not from Russia and, for example, from the IMF, is low.
Fortunately, the rating agencies are often mistaken, and we may hope for it in our case. This month we also expect promulgation of the revised rating by Fitch Ratings, the last agency of the "big three".
The GDP of Ukraine in 2014 will not grow without active steps.
According to the State Statistics Service of Ukraine, the GDP demonstrated zero growth in 2013. There are reasons to believe that, such a result could be affected by the special features of methodology and/or intermediate judgments in the process of calculations. Economists recognize that the gross domestic product and inflation rates are the indexes most subjected to "improvements" in the process of calculating. Argentina, the USA and Ukraine are very often given as examples of the countries in which the indexes are "improved".
It is significant that zero growth of GDP was achieved with the 13.7% growth in the agricultural sector (first of all favorable weather conditions) and decrease of industrial production by 4.7%. The unexpectedly high growth by 11.6% showed the pharmaceutical industry, which may be not a very joyful fact (are people more sick? Do they take a lot of unnecessary medicine?). "The main" chemistry (including nitrogen-based chemical fertilizers) failed by 25 %, the construction by 14.5 %, machine building by 13.8%, production of steel products by 15.5 -19.1%.
It is obvious that the results are weak, which, however, does not mean that with the European oriented government they could be or will be better. The main factors that caused the fall remain the same:
* low ethics and culture of business and policy (the fact that is used to call "investment climate");
* continuation of the course towards the European integration in 2013 with the appropriate reaction on the part of Russia;
* the policy of stable overrated exchange rate, decreasing competitiveness of Ukrainian products and reducing abruptly the lending of the real sector.
I will remind that one of the authors of the policy of stable exchange rate, changing with sharp leaps, was "the best central banker" according to the version of the west. He has already withdrawn from business, but his methodological heritage still remains. Fortunately, the current political aggravation allows you to reduce the pressure of the overrated exchange rate on the economy, writing off the drop of hryvna on the temporary panic. Judging from the results of this day, the National Bank of Ukraine will not attempt to strengthen the rate of hryvna artificially or to spend reserves for its support. However, the results of work of the National Bank of Ukraine in this direction in January should be known already this week.