Date: April 29, 2016
The government and National Bank have made mistakes that exacerbated the crisis. It is time for us to stop relying on the exports of metal, ore, timber and grain. We need to restore our leadership in the exports of machinery.
Member of Parliament, Head of the Parliamentary Committee on Financial Policy and Banking, Radical Party
Throughout the two past years no branch of power has demonstrated understanding of how to ensure Ukraine's transition towards an accelerated economic growth and achieve a radical transformation in the structure of our economy at least within 15-20 years.
Since only our own national high tech industry will bring wealth and independence to the people of Ukraine.
Some managers have openly declared that their purpose was implementing the IMF's program.
However, the recommendations the country really needs have not been implemented, while the controversial ones have often been used to disguise pursuit of personal interests. And few people actually discuss the tragic consequences for Ukraine.
The country has got no plan of its own. That is why a group of like-minded fellows decided to create a strategy for the development of the banking system.
The basic draft was prepared by a working group that included experts in the spheres of the monetary, fiscal and banking regulation, representatives of non-governmental organizations, academia and experts, as well as the banking community.
Co-authors, reviewers and 'critics' have taken part in the process, as well as consultants, including foreign experts with considerable experience in the field. The draft strategy can be found here.
On April 18, the document was presented to the public for discussion at a roundtable in the parliament. Our objective is to unite all those interested in more than just overcoming a systemic banking crisis.
We need a new economic strategy aimed at shifting the economy from the current destructive model based on the exports of raw materials towards one based on high tech industrial development. We believe that Ukraine needs a powerful banking system that can become the key provider of funds for the growth of economy.
The funds of our population and the national businesses should serve as the financial basis for economic growth, and not the loans from IMF or other international organizations. Foreign loans are just complementary tools and we should radically increase the efficiency of their use.
To be honest, we did not expect that the project would spark such a great interest, support and desire to contribute to its improvement. As a result of the public discussion, an expert group was created on the basis of the parliamentary committee, taked with collecting and systematizing the proposals on improvements for the draft strategy.
Also, organizational committee was created to oversee organization on May 19-20, the Banker's Day, of a large-scale conference "The Strategy of Development for Ukraine's Banking System", in order to discuss all proposals and adopt recommendations for the governmental agencies. The event will be held at Kyiv National Economic University.
Among the expert group and the organizational committee members were representatives of Kyiv National Economic University, NASU Institute for Economic and Forecasting, Ukrainian Society of Financial Analysts, Ukrainian Credit and Banking Union, Association of Ukrainian Banks, Academy of Financial Management, Scientific and Expert Committee of the Council of NBU, Institute for Development of Economy and Innovative Strategies - IDEAS.
And also, the head of Verkhovna Rada Committee on Industrial Policy and Entrepreneurship, Viktor Galasiuk, as well as other Ukrainian and foreign experts.
For us, the process of discussion of the banking strategy is an opportunity to set an example and support civic participation in the discussion on the necessity to create a general strategy for economic growth of Ukraine. We have to set the right goals and elaborate a consistent plan for reforms. How does this differ from the approach of the current government?
We agree that all the anti-corruption measures, the reform of the law enforcement and jthe udiciary are key. The rights of the citizens and the investors must be protected, and efficiency of the state institutions in their work for promotion of the national interests must be increased. Deregulation and optimization of the state expenses are also critical.
However, another critical area where reforms are needed must not be forgotten. Otherwise, Ukraine will continue as a resource colony and as the poorest country in Europe, even if we do manage to restore economic growth. I will repeat this over and over: we must transform the structure of our economy.
For this, Ukraine needs a proactive industrial, trade and financial policy that implies creation of a system of credit, tax and infrastructure incentives to encourage investment in the prioritized industries, as well as in small and medium businesses.
We have to ensure that the investors find it more profitable to work in Ukraine, versus in Poland or Hungary. That the capital flows from the resource industries to the high tech industries.
One of the key conditions that ensured success of the Asian Tigers has been the availability of cheap financial resources for the industries and the stimulation of the technological advancement. Those methods have been used by the counties of Asia and by our European neighbors.
We have to establish all the necessary market mechanisms and institutions that are used by the majority of successful countries. From an export credit agency to a development bank, from technology parks to scientific and technological centers.
It is time to stop relying solely on exporting semi-finished metal products, iron ore, unprocessed timber and grain. We have to restore our leadership in the exports of machinery.
Unfortunately, the government and National Bank have committed many systemic mistakes that have exacerbated the crisis and limited economic recovery. We do not accept that the critique of the government actions is too often limited to populism.
This is exactly why the co-authors of the draft strategy decided to lay out a deep analysis of the problems and mistakes committed by NBU in the monetary, fiscal policy and banking regulation in the document.
The experts have demonstrated in detail how the government's mistakes exacerbated the fiscal crisis that had hit hard the entire economy. They also looked into the wrongful approaches used for containing inflation through austerity measures affecting the real sector.
The analysts focused their attention on the underestimation by National Bank and the government of the risks coming from the foreign banks, including those with the Russian capital.
The experts have also highlighted the underestimation by NBU of the importance of the midsized Ukrainian banks for lending to the small and medium businesses, as their social role extends far beyond the narrow sectoral approach. They are all the more important given the key task of decentralization and restoring the economies of small towns and villages.
Only a systemic policy change can give us hope for sustainable economic growth.
Vladyslav Rashkovan, National Bank deputy governor asked before the public presentation of the draft strategy, why we had initiated the work on the project - since there is a comprehensive program for development of the financial sector until 2020 already in place. Here is my response.
The program does not contain the key objectives related to the structural changes in the economy, it only mentions that a stimulating tax reform is necessary.
Without the government and the parliament, it is impossible to solve the problems of the banking system. We need a deep understanding of the interconnections between the financial sector and the general economic policy.
Undoubtedly, many of the elements of the program for 2020 are necessary and important, but the program is not comprehensive unless it sets the right strategic goals.
Even the most important priorities of the program are not being implemented. The program has listed among the tasks stimulating the competition and ensuring equality of the financial sector participants. However, NBU's policy of reducing the number of banks and eliminating the small-sized banking institutions contradicts these declarations.
How can we be talking about fulfilling another declared principle - the principle of trust between the participants of the financial sector and the regulators - when the bankers complain to our committee about NBU's actions, yet are afraid to voice their concerns publicly?
Yes, for many years they have been reluctant to oppose the central bank, but now the media is openly writing about NBU being used as a tool for yet another property redistribution. For the first time, of such scale. How can we create trust in such an environment?
Unfortunately, the chapter on financial sector in the coalition agreement prepared in late 2014 is very weak. It was inadequate in the situation of the acute economic crisis, nor in relation to the strategic long-term goals of economic growth. A shortened version of this chapter has become part of the new government's program.
So, our goal is to produce constructive proposals for the parliament, the government, National Bank and other government agencies. We believe that the government is not using the powerful intellectual potential of our country to the fullest, that it does not always hearken to the advice of the foreign experts not focused on lobbying the interests of the country they represent.
We call on everybody who cares about the fate of Ukraine's economy and its banking system to submit proposals to the expert group on how to improve the strategy.
We plan to not only offer a quality strategic document to the government, but continue our work on creating specific programs and draft bills. Join us. United in our efforts, we can achieve more.