Wizzair’s decision to close its subsidiary in Ukraine and move one of its Kyiv-based aircraft out of the country is not entirely unexpected. With Ukraine finding itselfin a middle of a war, its currency depreciated and two once busy airports (Donetsk and Simferopil) out of commission, it is difficult to expect an increase in demand for international air travel. To add insult to injury, visa-free travel to the EU appears to remain as distant a possibility for Ukrainians as ever. The new Ukrainian government has to learn certain lessons from this situation, before it is too late.
Monthly Archive: March 2015
Inflation is always a hot topic in Ukraine – from hyperinflation in the 1990s and demand-driven price level growth in the 2000s to the present day and even the future – one of the main reforms outlined in the memorandum with the IMF is the shift towards inflation targeting. In February 2015 the CPI inflation, already quite high, accelerated further – to 34.5% year-to-year, the highest figure in two decades.
The IMF released details of its Extended Fund Facility (EFF) program for Ukraine. The program has a number of good elements. As VoxUkraine discussed before, the program provides much needed foreign currency so that the National Bank of Ukraine can tame the panic and stabilize the hryvnia. As a part of the deal, the Ukrainian government promised to do a significant fiscal consolidation.
Millions of Ukrainians now live abroad, and the majority of them have been born in the countries of residence. Multiple studies show that countries that can efficiently engage their emigrants into home affairs win in terms of economic growth and technological development. Yet, for this cooperation to occur, the diaspora itself should be rather well organized and willing to identify themselves as natives of their home country.
The fundamental flaw in the current sanctions is that though they punish Russia they don’t help Ukraine survive the Russian attrition war. Ukraine is financially much weaker than Russia and the Russian attrition war makes the west reluctant to fund Ukraine, reinforcing the economic weakness of Ukraine.To balance this it drastically needs compensation to do infrastructure projects. These can be funded through the proceeds of this Russian Aggression Tax. The EU can spend it in Ukraine by guaranteeing private investments and organizing energy reforms and infrastructure investments. It can also be used to pay back the current Ukrainian government debts to Russia.
Since Ukraine’s new government has been sworn in on 2 December 2014 the main accomplishment in implementing political reformhas been adoption of the law “On Ensuring the Right for Fair Trial” (the “judiciary law”). Meanwhile other aspects of political reform, such as changes in the electoral framework and decentralisation initiative, have not been moved forward yet. The process of developing comprehensiveand highly anticipated constitutional reform has just begun. Three months had passed since the new government assumed the office and certain number of pitfalls in reforming Ukrainian politics have become apparent.
On March 11, 2015 the IMF Executive Board approved a four-year Extended Arrangement under the Extended Fund Facility (EFF) of about $17.5 billion for Ukraine. The success of the program will depend on the Ukraine’s government long-term commitment to reforms. A good example of how participation in IMF programs coupled with government commitment to reforms can lead to economic revival is provided by India’s experience in the 1990s. In 1991 India went through a balance of payment crisis, where foreign reserves of the country dwindled to two weeks imports, currency values collapsed, and the government was on the verge of defaulting. Participation in the IMF program and a series of structural reforms followed sparking India’s annual GDP growth rate to an average of 6% since then.
The Index is calculated once in two weeks based on an expert survey. The IMoRe value for the fifth monitoring period (February 23th – March 8 th 2015) amounted to +2.2 points out of the possible range from -5.0 to +5.0 points. It is the highest Index value since the start of monitoring (December 2014) and corresponds to acceptable pace of reform (2-3 points).