Consequences of the political crisis Results for 2004 Forecast for 2005–2006 Press conference


НазваConsequences of the political crisis Results for 2004 Forecast for 2005–2006 Press conference
Дата конвертації02.05.2013
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ТипПрезентации


Consequences of the political crisis Results for 2004 Forecast for 2005–2006

  • Press conference

  • International Centre for Policy Studies

  • 20 December 2004


Plan of the presentation

  • About the International Centre for Policy Studies

  • Forecast for political developments in Ukraine

  • Preliminary economic results in Ukraine for 2004

  • Impact of the political crisis on economic development. Forecast for 2005–2006

  • What kind of regional policy is optimal for Ukraine?



About the International Centre for Policy Studies





What makes ICPS forecasts better

  • The Centre has been preparing regular economic forecasts for Ukraine since September 1997

  • Quarterly updates of these forecasts make it possible to take into account new data and changing trends

  • Our analysts’ conclusions are not slanted

  • Since 2002, the forecast period has been extended to three years (now through 2006)

  • Since 2003, the Centre has been publishing a monthly analysis of government policy, political competition and external relations under the “Political Commentary” project



Forecast for political developments in Ukraine

  • Daria HLUSHCHENKO



The democratic, middle-class revolution

  • The votes on 31 October and 21 November failed to clearly determine a new president

  • As predicted, the election campaign was the dirtiest the country had ever witnessed

  • Mass protests against vote-rigging were supported primarily by young people and Ukrainian SMEs



Forecast for the outcome of the 2004 presidential election

  • Viktor Yushchenko will win the 26 December vote

  • A repeat rigged vote in favor of Viktor Yanukovych is not very likely: the system for fixing the vote has been broken

  • Eastern and southern oblasts may not recognize Mr. Yushchenko as Head of the State



Forecast for political reform

  • The president will continue to be the key political figure, provided that he effectively uses his powers, despite limitations imposed by Constitutional reform

  • The Verkhovna Rada will quickly form a new majority that will support President Yushchenko

  • The influence and effectiveness of political parties will grow



Forecast for reforms

  • Democratic and market reforms should pick up considerably in mid-2005

  • Reforms to the tax, residential services and social security systems should remain on track

  • Corruption and government intervention in economic processes will be reduced, not the least because of the growing role of independent media



Forecast for foreign policy

  • The president, the Verkhovna Rada and the Government will make efforts to develop relations with both the EU and Russia

  • Moscow’s determination to be the only full-fledged FSU negotiator with the EU, NATO and the US will be undermined

  • Ukraine could turn into the epicenter of western influence among CIS countries



The transformation of relations with Russia

  • In the pursuit of mutual benefit, relations with Russia will become more pragmatic

  • Emotional positions such as “the friendship of brotherly peoples” will be dropped from the political vocabulary

  • Russia will be unable to manipulate Ukraine’s new president

  • The CEA as Russia sees it may never happen



Prospects for European integration

  • Recent events in Ukraine have proved a watershed in the way that the country is perceived in Europe

  • A democratic presidential election and the events preceding it could bring the prospect of Ukraine’s accession to the EU closer

  • Relations with Brussels should become more active, while foreign policy will be clearly oriented towards accession



Forecast for Ukraine-US relations

  • Ukraine will work to establish better relations with the US

  • Satisfying US demands regarding a democratic election should help resolve current problems in bilateral relations



Preliminary economic results for Ukraine in 2004

  • Andriy BLINOV



The risk to economic forecasts proved correct

  • The political crisis means that the economy will develop according to a risk scenario that the basic ICPS forecast did not predict

  • The Centre predicted that a president would be determined in the run-off and that the loser would acknowledge this victory

  • The Centre predicted smaller-scale vote-rigging

  • The Centre predicted lower volumes of social spending on the part of the Government



Economic trends at year’s end

  • The political crisis did not turn into an economic one and the economy did not show any sudden deterioration

  • The economic impact of a radical political struggle, threats of separatism, and ineffective work on the part of government bodies will be no more than 0.5% of annual GDP:

    • a lending ceiling will be instituted
    • productivity will slip
    • foreign trade contracts will become more expensive and some will be broken
    • Budget revenues will shrink


External conditions and economic growth annual % change



Real GDP quarterly change, %



Reasons for the economic slowdown

  • Economic growth will slow to 12% by the end of 2004 for three reasons:

  • Cyclic: five years of rapid economic growth under condition where there was insufficient investment and inflation accelerated to 12%

  • External: a stop in the brisk growth of prices on world commodity markets

  • Political: the short-sighted election policy of the Yanukovych Government, lower investment growth, huge capital flight



Investment growth not excessive



Ukrainian consumers lose confidence



Stable growth remains impossible

  • Insufficient development of domestic markets due to excessively porous economy (export/GDP ratio > 60%)

  • Concentration of metals exports (> 30%)

  • Obstacles to business development: “government-business” relations, dishonest competition, high political risk

  • Low volumes of foreign investment

  • Weak role of SMEs (10% of GDP)

  • Few opportunities for the financial sector to finance business or the general population, narrow range of services



Impact of the political crisis on economic development. Forecast for 2005–2006

  • Andriy BLINOV



Forecast for 2005

  • All government bodies will resume working and mass protests will stop

  • The priorities of the new Government will be stemming inflation, lowering the costs of foreign trade operations, stabilizing the banking sector, avoiding a payment default, and adopting a fiscally sound Budget

  • GDP growth will continue to slow, going down to 7%, due to trends that emerged in 2004 and low investment at year’s end

  • A moderate Budget deficit (2.5% of GDP)

  • In H1’05, inflation is likely to hit 15–16% year-on-year and settle at 11% by year-end



Assumptions regarding economic policy

  • After the election, the quality of government policy should improve, while economic reforms will pick up

  • Investors will show stronger interest in Ukraine

  • The new Government will maintain social commitments made by the previous Government, but it will not be able to increase social support

  • Ukraine should accede to the WTO in late 2005 – early 2006



Risks to this forecast

  • The presidential election will be delayed and state administration paralyzed

  • The political crisis will turn into an economic one and a recession will emerge

  • High inflationary expectations will wreck the financial system and deepen the Budget crisis

  • Inflation will gallop ahead (self-sustained), causing a payment default and banking crisis

  • Growing risk of economic disintegration



Slowdown in economic growth GDP, real % change



Investment will grow faster than GDP real annual % change



Foreign investment will continue to grow annual FDI net influx, USD millions



Slowdown in different economic sectors gross value-added, real % change





A shrinking Budget deficit Consolidated Budget revenues and expenditures, % GDP



A stable nominal exchange rate UAH/forex



Continuing acceleration of inflation in H1’05



What kind of regional policy is optimal for Ukraine?

  • Oksana REMIGA



Symptoms of regional policy problems

  • Interregional development gaps are growing over time

  • With the exception of the capital, no region is in the lead according to basic indicators



Relative ratings of regions compared to national average







An alternative to grouping regions by location

  • An alternative to grouping regions by location

  • Reveals problems and development prospects specific to a group of regions

  • Confirms systemic problems in regional policy



Groups of oblasts with common development features



Lack of clear goals

  • Lack of clear goals

  • Excessive centralization

  • Ill-defined role of national and regional governments

  • Ineffective means for supporting regions with development problems



Overall national well-being

  • Overall national well-being

  • versus

  • Interregional equality



Key regional policy tools

  • Special investment regimes—free economic zones

  • Inter-budgetary equalization mechanism

  • Sectoral programs allocating financial resources to support depressed areas

  • Centralized investment in socio-economic regional development

  • Support for socio-economic development in the mountain regions



Principles of reform

  • Decentralization, with clearly defined areas of responsibility for national and local governments

  • Active engagement of local governments in developing and implementing specific policies

  • Clear criteria for identifying troubled areas

  • Reasonable time limits for allocating government support



Thank you for your attention!



Consequences of the political crisis Results for 2004 Forecast for 2005–2006

  • Press conference International Centre for Policy Studies

  • 20 December 2004



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