The Yushchenko era: the Forgotten heyday of the economy

Эпоха Ющенко: Подзабытый расцвет экономики

Under Yushchenko, Ukraine’s economy experienced the largest investment and consumer boom

Under Yushchenko, Ukraine experienced economic prosperity. Is it possible to use this experience today.

Exactly eight years ago, Ukraine joined the WTO and at the same time in may 2008, the U.S. experts for the first time announced the onset of the financial crisis, perhaps on a global scale, writes Svetlana Hollands at No. 18 in the magazine Reporter on may 13, 2016.

Both these events marked “the end of the Belle Epoque”, time of flowering, which Ukraine experienced under the presidency of Viktor Yushchenko. Then, however, nobody understood.

Few people remember how good life was under Yushchenko. The paradox is that Viktor Yushchenko’s remembered only as a weak President, “rushing” one by one all his “dear friends”, including himself, can be loved – Peter Poroshenko.

Under Yushchenko, minimum pensions increased by 10 times, benefits for the birth of the child is 36 (!) times. Simply put, people had money

Period still remember Yushchenko as the chaos in the economy. And few people realize that the chaos may have represented economic development. Under Yushchenko, minimum pensions increased by 10 times, benefits for the birth of the child is 36 (!) times. Simply put, people had money.

While public sector wages, pensions, other social benefits were paid accurately, without delay.

And the prices? Prices also grew, and, in dollar terms. It happens, if the economy heats up. But 10 times they are certainly not increased.

The end of a great era

This period, called by many analysts the time of the emergence of the middle class in Ukrainian. Sociologist Volodymyr Paniotto offers to divide this category into relative middle class (those citizens who, along with the cost of food and clothes can afford to accumulate savings) and absolute (those who from time to time or constantly can in anything does not deny). In 2005, the first were up 22% of the total population, the second – 6-7%. In 2008 – and the other was a third more. Later, the absolute specific gravity of the middle class significantly reduced, relative will be able to overcome both the crisis less painfully and now afloat, said an expert.

Like mushrooms grow new banks. In less than four years – from 2005 to 2008, their number increased by 16, from 182 to 198. The crowd surged, foreign finuchrezhdeniya with their capital – by 2008 there were already more than fifty. They offered dazed from such attention to his own person the most unexpected consumer loan programs with numerous “Goodies”: the reduced rate, vacation credit, and raffle prizes.

To buy on credit could be everything from a new vacuum cleaner to a country cottage or package tours in Bali. And, to take this loan could almost anyone from 18 to 70 years. Official level of income, presence of residence, reputation as a borrower had almost no value. Credit history of the average Ukrainians are just beginning to form, and the income – confirmed and unconfirmed – were clearly growing year by year.

The majority (80%) of the credits offered in foreign currency (and despite the fact that the exchange rate of the dollar against the hryvnia in may 2008 fell from 5.15 USD to 4.85 UAH). People are willing to take dollar loans, the interest rate conditions which were in 2-2,5 times more attractive than the hryvnia. Lending to businesses also often carried out in dollars.

Having access to cheap resources, banks shamelessly stuffed portfolios of assets, with little concern about their quality. And grow on the margin

Having access to cheap resources, banks shamelessly stuffed portfolios of assets, with little concern about their quality. And grow on the margin. The staff gave out prizes for the largest number of borrowers involved.

“Yushchenko as the President, was created for the banks a maximum of comfort,” recalls the ex-Minister of economy of Ukraine Viktor Suslov. “It is no wonder that he until recently headed the Central Bank. The banking sector was a priority. Bankers came into power and openly lobbied for his interests. This period can be called the heyday of the “banking mafia”.

The bankers took the money abroad in foreign currency, then impose dollar loans here. Moreover, the loans were mostly long – five, ten and more years: mortgage, cars, home repair and so on. Deposits were attracted in local currency and the maximum of three years, often for a year. These distortions and imbalances were obvious to all. But they turned a blind eye. Bankers, of course, theoretically, understand what it may lead, but they earned here and now, and therefore did not skimp on the loans.

From 2005 to 2008 trade turnover increased 2.5 times. People are more willing to spend on expensive products. Sales of home appliances in monetary terms during this period has tripled. The car market – five times

Trade revived. From 2005 to 2008 trade turnover increased 2.5 times. People rushed to buy everything. According to the head of financial research GfK Ukraine Dmitry Yablonovsky, the index of consumer sentiment in this period was the peak. People are more willing to spend on expensive goods – furniture, appliances, computers. Sales of home appliances in monetary terms during this period has tripled. The car market – five times. The peak of its prosperity was experienced and the real estate market – both residential and commercial.

A profit of 300%

Only in Kiev, the number of shopping and entertainment centers in the structure of retail space has increased by one third and amounted as of October 2008, 39, says the expert, the head of the Construction BRDO, CEO Midland Ukraine Elena Shulyak. “Investors – including foreign — interested and keenly eyeing the Ukrainian market, which could give a very attractive 30% return,” says the expert. The only thing that hindered them, is the overregulation of the market and corruption with the vast amounts of bribes”.

The bribes kicked in and shocked foreign investors. Suffice it to recall the scandal with IKEA. Officials demanded half-a-million “kickback” for land acquisition. The company recently announced that it even in the future does not consider Ukrainian market

Elena Shulyak, CEO Midland Ukraine

Corruption in the era of economic Renaissance flourished along with all industries, the expert said. “The size of bribes was through the roof and often in the literal sense of the word shocked foreign investors. Suffice it to recall the scandal with the IKEA company, which was ready to sign in to multiple cities, with projected billions in revenue and thousands of new jobs, but officials are not flinching, demanded half a million “kickback” for land acquisition… IKEA waver. The company recently announced that it even in the long term does not consider the Ukrainian market, it is better to India…” — says Shulyak.

The domestic developers, however, to the distribution of bribes was not used to. They were introduced to the estimates of separate line objects for granted the expenses, says Shulyak. The volume “envelope” has increased from year to year. Do not pay to build will not. “But will you pay attention to these costs, if your business gives 300% return! And that is how much, on average, had players of the construction market in the period of housing construction boom in 2005-2008. The market has grown by leaps and bounds, prices too. According to analysts of the UN, during these three years, the cost per square meter in Ukraine has risen by 600%!” reminds Shulyak.

Keynesian theory in Ukrainian

The drivers of the real estate market began, of course, the same banks handed out mortgages to all comers.

Later such “generosity” will haunt Ukrainians. Tens of thousands of families will be forced to leave their homes mortgage. At the impound lots, banks Scopata fleets of credit Lanos and Chevrolet. Thousands of businesses closed, not being able to serve dramatically more costly borrowings in foreign currency, taken on the development or “just in case”.

But it will be later. And in the period from 2005 to 2008 that money played a key role in warming up in the consumer appetite and the stimulation of economic growth, believe experts.

From 2006 to 2008 the volume of lending as individuals, the real sector of the economy has nearly tripled

From 2006 to 2008 the volume of lending as individuals, the real sector of the economy has nearly tripled from 340 billion USD to 926 billion USD. The so-called depth to support the financial economy (the ratio of the volume of issued credit funds to GDP) grew steadily from 63% in 2006 to 98% in 2008.

The latter figure is very close to the world. In countries that successfully overcame the economic recession and emerged on a new level of well-being, depth of financial support from 100% and above. Loans should be plenty. Very much. In the first place for the real sector.

“No country has risen out of the crisis, if not provide the depth of financial support for its economy”, — said the head of the parliamentary Committee on industrial policy and entrepreneurship Viktor Galasyuk.

It’s simple: in the economy the money goes to her and then start acting as a detonator in development. This, incidentally, is the key thesis of the popular Keynesian theory, which since the great depression in the US quite successfully based economy the most developed countries in the world. The essence of the theory of the British economist John Maynard (1883-1946) is to stimulate demand by means of stuffing into the consumer market with cheap money.

The consumer stops to save on the Essentials and is money in the shops, car dealerships and travel agencies. Buys and equips a housing, is engaged in health and education. These tools run the real sector, which attracted new labor force, that in turn creates new, better and more expensive products. But in order for this spiral to start a healthy economy, government intervention is necessary. It should be the main initiator of “stuffing”. Whether through the cycle of government contracts or through attraction of loan programs and investors.

Yushchenko’s epoch is a clear example of the embodiment of Keynesian theory in Ukrainian. In addition to the active development of the banking sector credit with its countless innovations, she worked in Ukraine the program of support of leading industries

Yushchenko’s epoch is a clear example of the embodiment of Keynesian theory in Ukrainian, experts say. In addition to the active development of the banking sector credit with its countless innovations, she worked in Ukraine the program of support of leading industries – metallurgical, chemical, building, increase the level of social support of the population.

Was finally marked and an investment boom. As money went from investors within the country and from overseas. Thus, the volume of capital investments from 2004 to 2008 has tripled – from 89 billion to 272 billion. Foreign direct investment increased by one third, from $ 7.8 billion in 2005 to nearly $ 11 billion in 2008. For comparison, the volume of direct foreign investments in 2014 amounted to only $ 410 million.

“At the moment, after winning the first Maidan, the international community treated Ukraine with great sympathy, — said Victor Suslov. — And a lot of us are willing to lend. As much as then, we never received – not earlier and not later. But you need to realize that it was a period not only of prosperity, but also the accumulation of debt.”

The structure of these debts, incidentally, were diametrically diverse: public debt has fallen to 2007, the direct foreign debt amounted to only 7.4% of the GDP, which was almost two in less than three years earlier, in 2004. At the same time, the volume of corporate debt over the last three years has tripled and approached the astronomical figure of $ 70 billion In the result of the gross external debt in 2008 amounted to about $ 80 billion, which amounted to unprecedented 56,02% of GDP. Next, however, the ratio of debt to GDP only grew and continues to grow.

The crisis of “bubbles”

“In 2005-2008-m strongly stimulated by the rapid consumption. People threw money and warmed the economy — confirms the Director of the Center crisis research Jaroslav Zhalilo. — But it was a situational decision, it was impossible to stop. Meanwhile, no one looked at the prospect of what to do next. Politicians bogged down in infighting, while the economy began to decline from the resulting imbalances. That is why the crisis of 2008 hit Ukraine so painful. Export-oriented economy quickly felt the change of the situation on the metals market, began to SAG and other markets. Inflated bubbles with the noise burst”.

Today it is accepted in all the troubles experienced by Ukraine after 2008, to blame just the period of “unbridled consumerism”. Say, cast credit and money beckoned illusory Paradise, and then slammed the door in the face. Greedy, we had eaten all I could eat away, and now disentangle and I can not catch up. However, according to Elena Shulyak, the effect of the crisis in practice was not so cruel – there is more speculation.

“If you look at the statistics of industries, investment in the two years prior to the crisis and a year after, we will see …the same numbers! says Shulyak. —For example, the volume of investment in construction in 2009 fell by half compared to 2008, and were equal to the figures of 2006 (not the worst in the history of the industry of the year)! Yes, fell the profits of developers. With 300% decreased to 150%. But is that a crisis?”

The crisis was for Ukrainians is much more painful psychologically than economically, is convinced the expert. In the Yushchenko era”, we have tested the welfare of the consumer, to part with which was very difficult.

Take up the old?

Will help us today the tools used by the government in the period after the first Maidan: the infusion of money, the development of social programs, attempts to raise the real sector? Pull hair whether the current stagnant economy? Why not? However, there are nuances…

Former Deputy Prime Minister of Ukraine Volodymyr Lozovoy considers that unlikely: then, in “the era of Yushchenko,” Ukraine lived for the account of the post-Soviet production capacities, which have modified your resource. Today their potential is exhausted, and the products we offer for export is rapidly losing its markets.

“Are what we are today, with our products we do not need anyone,” says willow. — Came from China and other young economy and offer the same thing, only much cheaper. We need to modernise production, introduce innovative technologies, to upgrade the economy, to create enterprises of a different type. And this – you need to separate the oligarchs from the industry. They are not able to pick up and upgrade, they can only resell bankrupt, or to take profit,” — says the expert.

The trust, which was in Ukraine from 8 to 11 years ago, exhausted, and her reputation as a borrower in international financial markets severely tarnished

Suslov recalled that the trust, which was in Ukraine from 8 to 11 years ago, exhausted, and her reputation as a borrower in international financial markets severely tarnished. The business and political atmosphere now prevailing in the country, capable of repelling the desperate investor, warns the expert. Thus, abundance of loans and investment programs in the near future is not expected. Large of cheap money will not – and thus not see and the consumer boom.

Elena Shulyak, however, is convinced that one of the tools of “the era of Yushchenko,” it is possible to adopt industry. “We need to build! No matter what: roads, housing, commercial real estate. The construction was launched deep stagnant U.S. economy during the great depression and Germany during the recession. Alas, in Ukraine there is even a separate relevant ministries – industry do by a residual principle. And without the state participation not to run. Sorry, this is a powerful multiplier” — sums up the expert.

One thing is clear — the economy in Ukrainian conditions will not rise, while the people remain poor. But he managed to fall on evil days since the time of Yushchenko.

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This article was published in No. 18 of the magazine Reporter on may 13, 2016. Reprinting of publications of magazine Correspondent in full is prohibited. The rules of use of materials of the journal Correspondent, published on the website Корреспондент.net can be found here.

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