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Viktor Yanukovych: Inflation as a challenge to Ukrainian politicians
15.11.2007, 10:22
The price increase which occurs in the last months requires the evaluation of this problem in all its complexity. The inflation rate has exceeded the forecasts schemed at the beginning of the year. But in our forecasts made early in the year we did not take into account destabilization of the internal political situation in the country provoked by the populists and opposition politicians. In this connection the forecast turned out to be inaccurate. The same is with the forecast of many international organizations, including the International Monetary Fund.
But we see that prices on food grew almost throughout the world. Prices on bread and milk took a steep jump in Germany where the economy is developing quite well now. The same is taking place in France. According to the analysts' forecasts, further inflation growth and abrupt decline in purchasing power may lead to the economic growth rate slowdown in all EU countries.
As in Ukraine, the main reason of the inflation in our western neighbouring countries has become price increase on food caused by draught (in Ukraine it is exacerbated by the political crisis), as well as price rise on energy carriers and changes in the policy of subsidizing producers. Thus, for example, if a price for a ton of bread wheat was US$110 a few months ago it amounts US$350 now.
The export restrictions on grain which were posed by the Government had an effect, however insufficient. High power intensity of the Ukrainian economy, wages and pensions increase as well as other negative factors, instability caused by the pre-term elections being of the greatest significance, should be taken into account. We warned about the last point as long ago as in spring this year trying to draw attention to danger of the political instability impact on the economic processes.
It is quite another matter that the food expenses share in the income of an average citizen of highly developed states is not as high as in Ukraine, and it should be acknowledged.
Unfortunately, anti-crisis and anti-inflation measures that have been implemented by the Government since 2006 were not enough to overcome negative impact of destabilization connected with the elections. Now it is essential to get out of the situation. We should primarily realize that the world is evenly stepping into an epoch of expensive energy carriers and expensive and scarce food. In the nearest future the food security would become as acute and pressing global issue as the power problem nowadays.
However, some specifically Ukrainian tendencies appear behind these comprehensive factors. The Ukrainian pattern of inflation also lies in its inefficient executive axis – the diarchy of power. I mean the conflict of plenary powers both on national and regional levels. Moreover, it happened that local authorities and local administrations were incompetent in their functions and direct duties. The price increase is uneven and often of economically groundless nature. One cannot but be surprised that a price difference among regions on one kind of products is 1.5-2 times. Thus unfortunately we pay a very high price for unbalanced system of the state governance.
One of the crucial reasons of inflation growth has become incompleteness and delays with continuation of reforms in Ukraine. Partial reforms only aggravate a chronic decease of the Ukrainian economy. We remain to be hostages of a high rate of energy consumption by enterprises and public utilities. Unsolved social and economic troubles have already become permanent. Multiplied by "skidding" reforms they raise noticeable cumulative effect, particularly the high inflation rate.
In order to not let these negative processes develop, the Government has defined the key priorities for itself.
First of all, we will use the whole range of measures to avoid undermining the economic growth rates under pressure of the inflationary factors. A step-by-step plan of actions will enable us to hammer inflation in the so-called security corridor at first, and then to remove economic disproportions and non-monetary inflationary factors.
Secondly, we hope to succeed in optimizing a pattern and structure of the government spending without rejecting at that the government obligations to protect socially exposed sections of the population. We will not let an inflationary burden lay only on the shoulders of citizens of the most moderate means, on the representatives of small and middle business.
Thirdly, taking into account the exacerbation of the food security in the world, we are preparing preventive actions. Despite the fact that Ukraine has a relatively high safety margin and level of food self-providing by the population, we will reappraise our policy on ensuring food and power security.
The Government has already made the primary steps focused on maintaining price stability. In particular, a number of negotiations with market makers who determine price stability on grain, food and petrol markets of Ukraine have been conducted.
A range of measures which are to establish the control over prices using market forces has been worked out and is now being introduced. It is a question of commodity interventions, reduction of import tariffs and increase of export ones on the specific food items and on raw material.
The consolidated position of the Government and the NBU on fiscal, monetary and price policy for the next year is certainly required. From our point of view the balanced fiscal and monetary policy is indeed needed to unless fully tame, then at least introduce socially and economically acceptable corridor for inflation.
The issues of the possibilities to adjust an export model and improve foreign-economic model of Ukraine are being examined. We strive to bar the national economy from the inflation import inflation and economic instability that can be generated by international financial, power and commodity markets.
The Government is launching the system revision and clarifying of economic and financial calculations and forecasts being used in preparing the 2008 budget.
A system of measures to consolidate and increase the Government reserves is being elaborated. A revision of the Agrarian Fund operation methods, sources and capacity to upgrade energy reserves of Ukraine is being conducted. Ukraine is to review its state priorities concerning the agro-industrial complex development taking into account the needs to ensure food safety and self-sufficiency. For example, currently the regional grain stocks cover three months demand. The purchase of grain to the State Food and Material Reserves is being forged. The control systems over the grain market should be installed to make a fully-fledged use of agricultural capacity. We have a plan of anti-inflation measures involving among others the advancement of a normative and legal base concerning imposing tariffs on housing and communal services.
Nevertheless appraising the reasons of inflation, it should be noted that a great number of economic problems is entailed by political risks. Instead of solving acute and system economic challenges politicians are engaged in political intrigues. Permanent electoral races and political conflicts influence not only ordinary citizens but as well businessmen who consider political risks while pricing and planning their economic activity.
"Nowadays the stability is spoken about in increasing frequency. I might be soundly afraid that this topic will remain on the agenda for a long time, at least by the time until we have applied this notion only for our economy and currency but paying little attention to the moral stability as a tool of universal mutual understanding of higher level". These are the words from a speech by a well-known German statesman Ludwig Erhard which he made on the opening of a session in Bundestag in December 1976.
Extrapolating this idea to Ukrainian reality it should be mentioned that today the "moral stability" might define the extent to which we will succeed to manage dangerous processes referred to above.
I have said more than once that the politics basically cannot be originated on highlighted effacing political opponents, on provoking moods which predispose people to an idea that a reason of all existent problems lies in helplessness of the current power. That, as they say, we will change the power and all problems will disappear: prices will go down, wages and pensions will grow.
Nothing alike will certainly happen if the politics is founded on short-term narrow-party interests not trying to mobilize the whole national potential, including the political opponents' potential, on a fight against dangerous processes in the economy.
Let us glance at the European Union countries, at Russia. In spite of a political struggle taking place there as well, it never overshoots a limit beyond which the political rivalry can negatively affect the economic security.
For us it has become a norm. However it should be understood that whoever comes to power tomorrow will not be able to manage challenges by his own, generated by the difficult situation in the global economy. It should be remembered that responsibility in politics primarily means responsibility before the people for what you have done to unite efforts in the face of a serious threat rather than for obtaining power at any cost.
Lambasting the authorities even if it is based on the political state of affairs should not be conducted by a principle "to go on foot to spite a conductor". Idem Ludwig Erhard said that a cold cannot be treated with a suicide.
Meanwhile "suicidal" moods are evident in our politics. Instead of thinking over how to bar inflation with joint efforts, we see how some politicians use this issue to fight against their political opponents. And that tomorrow they will have to explain their fellow citizens that price increase is a global phenomenon rather than specifically Ukrainian does not stop them.
I think that if the present negative processes in the global economy did not clash with the so-called political crisis then the Ukrainian citizens would not be overexposed to the inflationary processes.
Therefore instead of a policy of searching guilty, the efforts of an executive axis, the Verkhovna Rada, the President and the Government should be unified to overcome inflation threats. Diminishing political risks may become the contribution of the Ukrainian politicians to surmounting inflationary expectations and ensuring the economic stability.
Currently our opponents who in fact caused this price instability are trying to lay the blame on the Government – they say, it is accountable for price increase. However the most zealous critics often do not operate with facts and economic calculations. Unfortunately they are guided only with a desire to get power at any cost rather than an awareness that leading Ukraine out on the path of steady economic development can be possible only with joint efforts.
Therefore assessing the inflation issue I urge all fellow-citizens to distinguish the actual reasons of inflation from political gambles. This is indeed in the core of how promptly and effectively we will manage together with challenges facing today our country's economy and every Ukrainian family.
"Facts and comments", No 210 (2491), November 15, 2007 | |
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