Top 20 unorthodox economic decisions over the years of independence

| Kyiv Weekly
Olena Belan, Chief Economist at  Dragon Capital, participated in the survey commenting economic decisions over the years of independence

Experts say the substantial increase in social payouts to young mothers during the Orange era was the most unconventional decision over the independence years

Many economic policies adopted by Ukraine?s governments would have been considered quite normal in the industrialized countries. However, the majority of initiatives that “k:” experts mentioned in the survey were daring and unexpected at the time they were made

The top position of the election promises of ex-president Viktor Yushchenko to sharply increase social payouts to families after childbirth came as a surprise. Until April 1, 2005, mothers of newborns received a one-time payout of no more than UAH 800. This in no way stimulated an improvement in the demographic situation in the country. In fact, a slight increase in the rate of childbirth was observed only by the middle of 2006 given that the decision to increase payouts was quite surprising and potential parents did not have time to prepare for this. Meanwhile, the increase in social expenditures shook the budget system that was unstable as it is after the presidential elections.

Next on the extravagance scale experts rated the package of measures taken by the government and the central bank to pull the country out of the crisis, in particular measures for salvaging the banking system. “Nationalization of certain financial institutions raised many eyebrows. The procedure was non-transparent and in many cases did nor seem intended to salvage the nations banking system. Because of the staff, financial and time miscalculations, the government ended up among the losers,” believes Serhiy Oberkovych, a lawyer and partner of the Hvozdiy & Oberkovych law firm.

Executive Director of CASE Ukraine Dmytro Boyarchuk agrees: “They created another scheme for stealing money from the budget. Instead, people?s deposits should have been compensated at the government?s expense and the [ailing] banks should have been simply shut down.”

Expert opinions divided on last year’s ban on payout of deposits and hard currency loans. “Despite all the problems related to this decision, the moratorium turned out to be quite effective.,” notes Director of the Investment Analytical Center of FOREX CLUB Mykola Ivchenko.

Director of Economic Programs at the Razumkov Centre Vasyl Yurchyshyn disagrees: “In 2004, when the country was knee-deep in the political crisis, such anti-crisis measures were appropriate. In 2008, they looked rather farcical, since they simply turned out to be schemes for the enrichment of certain citizens.”

There are also many contradictions concerning another unconventional decision, which the NBU passed in 2005 on the revaluation of the hryvnia. “The NBU simply did not come out onto the interbank exchange and did not buy up the existing surplus of foreign currency. During this period, the majority of export-oriented companies suspended or reduced their exports since settlements were mainly made in foreign currency. As a result of such a lull, the government fell short of substantial amounts of potential tax revenue,” Oberkovych describes his view of the situation. However, NBU Council member Roman Shpek believes that the populism of the Yanukovych campaign made the revaluation inevitable anyway.

Despite much criticism by domestic and foreign investors experts say the liquidation of free economic zones was a positive decision. These territories with privileged taxation ostensibly oriented towards export in fact re-sold domestically produced goods inside the country. In 2005, the amendments to the law on the budget for the elimination of FEZ were lobbied personally by Finance Minister Viktor Pynzenyk as the first step toward setting equal rules of the game for all businessmen. The mechanism of indisputable writing off of funds from the accounts of companies, which the market?s old-timers remember with horror, was given a comparatively low rating as an unconventional decision. The system worked as follows: if the debtor did not have the possibility to settle accounts with the creditor by the deadline, including to the budget, the money was transferred from their bank accounts automatically. “The application of the mechanism of charging debts to the state budget since 1993 became one of the reasons for the increase of the national debt Ukraine, an increase in volumes of non-payments and the widely spread form of settlement through barter for commodity turnover. This ultimately led to corruption schemes. This is why cancellation of this mechanism was a wise step,” recalls senior advisor for Alfa Bank (Ukraine) Roman Shpek, who in the 1990s served as vice premier, economy minister and supervisor of economic reforms.

Despite the naivete and simplicity of some unconventional decisions that the leaders of our country proposed to solve economic problems only several years ago, today the government seems incapable of undertaking such experiments. Viktor Yanukovych at the moment can only talk about shock therapy instead of stripping all companies that have ties with the current government of all preferences or simplifying the operations of private businessmen.

The following experts participated in the survey

1. Serhiy Tyhypko, Vice Premier, Social Policy Minister

2. Leonid Kozachenko, Chairman of the Entrepreneurs Council under the Cabinet of Ministers

3. Roman Shpek, member of the NBU Council, senior advisor at Alfa Bank Ukraine

4. Dmytro Oliynyk, COB of the Employers? Federation of Ukraine

5. Myroslav Yakybchuk, Head of the Forum of National Trade Unions

6. Oleksandr Rohozynskiy, Director of the Kyiv School of Economics

7. Vasyl Yurchyshyn, Director of Economic Programs at the Razumkov Center

8. Oleksandr Kyrychenko, professor at the National Management Academy

9. Oleksandr Okhrymenko, President of the Ukrainian Analytical Center

10. Ihor Mazepa, General Director of Concorde Capital

11. Vitaliy Vavryshchuk, analyst at BG Capital

12. Olena Belan, Chief Economist at Dragon Capital

13. Oleksandr Lozoviy, analyst at Phoenix Capital

14. Dmytro Boyarchuk, Executive Director of the CASE Ukraine Analytical Center

15. Mykola Ivchenko, Director of the Investment Analytical Center of FOREX CLUB Ukraine

16. Andriy Novak, Chairman of the Economists? Committee of Ukraine

17. Anatoliy Baronin, Director of the Da Vinci AG analytical group

18. Serhiy Oberkovych, lawyer, partner at the Hvozdiy & Oberkovych law firm

19. Vitaliy Serdyuk, partner, Head of the Criminal Department of the AKTIO lawyers? association

20. Olena Kybenko, managing partner at Kybenko, Onyka & Partners law firm, member of the Expert Council for Corporate Governance Issues at the State Stock Exchange and Financial Markets Commission