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Second front of oligarchs at dawn: Ukraine’s economy for a week

Photo: nahnews.org

The series with an intricately woven plot in Ukraine’s relationship with its creditors is still going on. 

Ukraine’s problems related to foreign debt retirement allow Natalie Jaresko, US-born Finance Minister of Ukraine, to pay frequent visits to her homeland. Next week Jaresko will leave for the United States to hold negotiations with the private creditors. The negotiations are scheduled for August 12, and the round-up of old friends is to take place in San Mateo – a city in the San Francisco Bay Area, California, where the head office of Franklin Templeton, the largest holder of Ukrainian Eurobonds, is located.

On August 4, the Finance Ministry of Ukraine submitted revised proposals for restructuring of the sovereign state-guaranteed debt to the special committee of creditors, and urged the creditors to attend the high-level meeting in London on August 6, Thursday. However, the creditors qualified the Finance Ministry’s new proposals as unacceptable, and stated that the meeting scheduled for August 6 was untimely.     

Ukraine was once again taken down a peg in the complicated system of international financial relations, but the Finance Ministry interprets the situation in its own way. It appears that “the Ukrainian party is ready to give more time to the committee of creditors so that they could prepare revised and improved proposals on debt restructuring.” To remind, Jaresko called the previous proposals for 5% remission of the principal debt amount insufficient. Ukraine wants the remission to be 40% at least. It is hard to doubt the sincerity of the thoughts and steps of the “entrepreneur, millionaire, co-founder and former chief executive officer of Horizon Capital” (as Wikipedia says about Jaresko) in defending the interests of high money in Ukraine. Who can keep the sheep better than a wolf?

August 7. Economic breakthrough from the Ministry of Economic Development and Trade.

The Ukrainian Ministry of Economic Development and Trade found a unique method to reduce bureaucracy – the employment record books should be liquidated. Minister Aivaras Abromavičius thinks an employment record book is a relic of the past. The Ministry of Economic Development and Trade considers that “Ukraine already has a single database containing information on employment and pension contributions. The employment record book just duplicates the data. In addition, all employers are well aware that the procedure takes time.” Indeed, it is no use having documents that duplicate the information contained in the database. Further document-supported information on the employment period, career and other things may encourage some labor power elements to fight for their own rights. A paper duplicate of e-data will make it harder to refer to e-system failures and computer viruses, which corrupt the databases. This, in turn, may cause additional budget expenditures to repay the well-earned retirement benefits. However, such ineffective expenditures as retirement benefits are being combatted slowly but steadily. See below.

Late July – early August. The Ukrainian Cabinet of Ministers increased employment period for education, healthcare and social security employees before they become eligible to retire.

According to the relevant decree, the required period will annually be increased by half a year on April 1 – until 2024. As a result, the period will be extended to 30 years by 2024 (versus the current 25.5 years).  

The decision meets the best traditions of “the methods of manipulation” of public opinion. In this case, the matter concerns two such methods – “gradual application” and “delayed implementation”. The retirement age increase is protracted for a decade and it initially applies to certain categories of employees, not to everyone. It is especially convenient for dividing and ruling the multitude adhering to the principle “it's not my funeral”. The goal is clear – to reduce expenses for the needs that corporations think are ineffective.

Therefore, the decline in the Pension Fund's deficit from 19 billion UAH in early 2015 to 15.1 billion UAH after the first two quarters of 2015 was registered due to reduction in expenses rather than growth in contributions. Mykola Shambir, First Deputy Chairman of the Pension Fund of Ukraine, states that the expenses dropped due to the amendments to the legislation on reduction and suspension of special benefits and restriction of benefits for the working pensioners, as well as at the expense of the benefits of those who live in the anti-terrorist operation zone and have not been registered in the territories controlled by the Ukrainian authorities.

It should be noted that either the first deputy chairman of the Pension Fund of Ukraine is unaware of the ongoing processes at the Cabinet (particularly, the Cabinet's decree No.529 dated July 29) or he deliberately misleads the public, stating that “the retirement age will not be increased and one should expect the retirement benefits to rise starting from December 1, as envisaged by the state budget.”

According to the Institute for Demography and Social Studies, the maximum effect of the retirement age growth will be visible in 2021. Lidia Tkachenko, a senior researcher at the Ptoukha Institute for Demography and Social Studies of the National Academy of Sciences of Ukraine, says: “…when we reach the female retirement age at 60, we will see the maximum effect of the cutback in pension expenditures. The saving will make up 1.5−2% of the country's GDP. Certainly, this figure is insignificant, but it is a long-term effect.”

As regards men, the effect is close to the maximum level — the male retirement age already exceeds the average lifespan by 2.6 years (122nd place among 192 countries). The country is obviously being turned into “an afterworld” and the male population is offered to count off by “Heaven’s Hundred Heroes”.

On August 1, the Hyatt Regency Kiev Hotel hosted a tacit-and-overt congress of the cream of the pre-war oligarchic community of Ukraine.

A flower is gradually shriveling in an unnatural habitat, which encourages frienemies to cooperate to defend their own interests. Some of the Ukrainian oligarchs have to defend themselves from the other part of the oligarchy, who have by chance received power in the country, and they are doing it within the competence determined by the US Embassy in Kiev.

The “deoligarchization” of Ukraine declared by President Poroshenko is fraught with truly tangible losses — it is quite natural when the fight against the competitors is being conducted by heavy odds, with administrative resources involved. Losses hit everyone, except the key fighter against the Ukrainian oligarchs (aka the president of Ukraine, aka the Ukrainian oligarch with the highest growth rates of assets value). No prisoners are to be taken. Poroshenko said in an interview with Le Monde that “it is not an agreement with the oligarchs, it is a fight.” Apparently, following the temporary settlement of a conflict with Kolomoisky (with the support of the US Embassy in Ukraine), Petro Poroshenko got dizzy from success.  But this won’t last forever. Probably, the “congress” at the Hyatt Hotel marks the dawn of the Second front of oligarchs against the incumbent regime.

The source of resources in Ukraine that might have been subject to repartition is decreasing sharply both as a result of the war in Donbass and due to fulfillment of the requirements of the International Monetary Fund and the Association Agreement/Deep and Comprehensive Free Trade Area with the European Union. Consequently, the fight for the remaining resources will be toughening.    

Meeting at Hyatt Hotel. Post-default Ukraine?

Alexander Dudchak, economist, specially for EADaily

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