2008

CRISIS FACING THE IMPOTENCE OF THE POWER

The world recession hurts Ukraine. Many experts argue that the country in on the edge of default. Indeed, situation with economy is critical now. However, the state liabilities for 2009 are moderate, so the country will live a year in deep recession, but without default. There is indeed possibility for corporate defaults. Moreover, if deficit of debt capital will last for a year, all the corporate defaults will cause decrease of payments to the state budget (less VAT, profit and other taxes). This will destroy financial health of the state in general. Therefore some corporate defaults are possible, they will worsen economic situation, but not at the level which can cause the national default. There is possibility of defaults in the banking system – not whole system, because there are enough gears and reserves of the National Bank and whole banking system to avoid default of whole banking sector. Bankruptcies of some medium and small banks are really possible. Despite currently high devaluation, the hryvnia exchange rates are going to get stabilized, quite probably in a range of UAH 7 – 8 per $1 in early 2009. Certainly that will help exporters – but will not compensate completely decrease of world prices. Devaluation will severely hurt companies with liabilities in foreign currency and hence worsen solvency problems in economy, increasing risks of corporate defaults. Decline in world markets will diminish exports of many key industrial companies. However, such decline will be acceptable for many (although some will go bankrupt). The most negative outcomes will include multiplier effects for co-operating industries and for particular regions. Growing unemployment and frozen incomes will cause fall of many consumer and regional markets. The main reason of crisis growth is in fact impotence of the Ukrainian state power, which representatives keep on fighting with each other. Establishing new coalition and electing new speaker does not mean political stabilization – vice versa political confrontation will get harder in 2009. Neither the state power, nor opposition will do anything serious to save the national economy. At the same time, there is no state default in 2009, but neither are fast solutions of the economic and political crises. The recession will last at least for whole 2009.