2010

Banks Will Not Stimulate Economy Revival

The main problem of the Ukrainian economy is lack of money, caused by extremely high cost of borrowing. This is not only a result of the current recession, but also an outcome of the policies undertaken to save the banking system.

This high cost of money is ultimately ineffective for banks themselves. They cannot rely anymore on external support of foreign shareholders or on financing of the National Bank or assistance of the government.

Now banks face new realty and new rules. However some rules, adopted by the National Bank and the parliament can stimulate revival of the banking system since they ease making business for them.

At the same time, Ukraine paid very high price for the saving its banking system. In addition to $10 bn spent by the NBU to keep banks afloat and the nationalization expenses of the government, current bad situation in the banking postpones the economy revival. The NBU now does not work as a tool of proper economy policy; even its standard tools like the discount rate for refinancing are not efficient anymore.

Current monetary trap delays while revival for a least he second half of 2011. Meantime for that period, due to high money costs, Ukrainian economy will get so cheap, that will become attractive for making trade and investments. But this is possible in the best case, when further saving the banking and monetary systems will not be done for banks and money themselves, but for economy.