2005

MOVING FROM SOCIAL POPULISM: WILL ECONOMICS BE RECOGNISED?

In September, when economic data of summer were calculated, some unpleased results of economic activity became clear: Ukraine has negative tendencies of decline in export, GDP, industrial output, including metallurgy, also in construction and transport. There are too many problematic indicators which concern most of economy - and it is impossible to ignore them. Main reason of such complicated problems is in fact simple. It was just neglecting basic laws of economics. First, it concerns inflation. Its main reason is misbalance between supply of economy output and proposition of money, which was not corrected to decrease of output. Stimulation of import was not able to compensate such a decrease. Second is still high tax pressure to corporate sector. It has already passed the optimal point, which guarantees the highest tax revenues, so total tax pressure should be eased – otherwise commonly spread tax avoidance will only increase. Finally, short viewed actions towards property rights (re-privatisation appeal, not transparent court procedures, and not selective approach to liquidation of loopholes in tax legislation) made investments into Ukrainian economy riskier, while rates of return remained the same. As a result, there are much slower (in total) domestic investments, decline in some economy branches and even investment withdrawal by investors from some developed economies. In the base of such neglecting economics laws there was one thing: need to get more money as soon as possible, in order to provide larger social payments and then to win more popularity among voters. Certainly, it was supposed that low inflation level should accompany this process. In realty, more pressure onto corporate sector (taxes, property rights) slowed investment activity, what, by multiplier effect caused slowing down economy growth rates. To avoid above mentioned mistakes, new government has to reconsider macroeconomic policy, freeze re-privatisation, set clear rules for business and decrease direct interruption to business practice. And last, but not least, new government has to pass its maturity test: establishing better economic relations with the European Union and joining the World Trade Organisation. That is real strategic solution of the task of support Ukraine's economy growth in long term. How the Ukrainian government will manage to solve it will be seen very soon - in December both organisation have summits, which will define relationships with Ukraine.