Brilliant reforms, Davos, memorandums. What future are the government and the IMF preparing for Ukrainians?

IMF condemns Ukraine to zero oligarchy

Diagnosis: Country as a raw material supply base.

Ukraine cannot become rich if it focuses only on the domestic market. Ours is inadequate, scarce, and does not allow manufacturers to take full advantage of economies of scale. Moreover, according to the UN, the country’s population has decreased by ~10 million since 2014. Their absence in the country means an annual loss of $30-35 billion in domestic demand for Ukrainian producers of goods and services. Especially those who have invested in their production, anticipating that there will be much more demand for their goods within the country, and who also have to pay off loans. The Central Bank’s policy of bans/restrictions on foreign exchange transactions further increases the headache. First of all, the availability of employees for enterprises and ensuring the stability of electricity supply adjust annual plans for the implementation of investment projects. For this reason, it is absolutely essential for Ukrainian producers to turn to foreign markets.

Today it is difficult to say how many Ukrainians who left the country after 2014 and 2022 will return. The continuation of the government’s current economic policy, which can be called “mess”, will most likely demotivate Ukrainians abroad to return and push those at home after the war to implement plans outside the national Oligarchy/Schematosis model. .

One way or another, if we remove military actions from the equation, everything depends on the quality of economic policy and the choice of the development model.

Ukraine is obliged to provide favorable conditions to domestic and foreign investors in order to obtain profitable niches in European and global markets. Success indicators – Ranking in the top 30 in the rule of law, protection of property rights, economic freedom and innovative development index.

In order to attract profitable connections to the country from global value chains, Ukraine needs to win regional competition, at least in terms of the quality of monetary, tax and regulatory policies.

To become a strong industrial region, at least for Europe, by using comparative country advantages, Ukraine needs to win the competition for quality labor and entrepreneurial capital. This means the existence of a modern, dynamic labor market, not a Soviet.

To become a place where the most modern technologies are commercialized, Ukraine needs to operate according to the standards of market leaders, have a regime for the free movement of money, goods and services, with access to high-quality infrastructure and the social security system.

All of these imperatives apply to the Government focusing on delivering rapid, long-term economic growth and joining the prestigious club of countries with a GDP of more than one trillion dollars. There is no such Government in Ukraine today. Just as the IMF, which once again presented its forecast for the country’s development until 2033 in October, does not have such a development vision. The Foundation’s assessment of the dynamics of Ukraine’s foreign trade convinces us that there is no chance of a breakthrough in modernization. At least it does not appear in the IMF’s forecasts for the next eight years. Let’s look at the numbers.

According to the IMF, in 2021 Ukraine’s goods exports amounted to $ 63.1 billion (according to the WTO – $ 68.1 billion). The war, of course, hit our commodity exports hard. The IMF believes that we will exceed the 2021 level only in 2030 with an indicator of 66.7 billion dollars. In 2033, goods exports will be 84.7 billion dollars. In 2021, goods exports will account for 31.6 percent of GDP. It is estimated to be 26.3%. In other words, we will ensure that the Ukrainian economy is compressed rather than rapidly internationalized. How will it be possible to make money from this without a large domestic market? In the early 2020s, more than 60% of goods exports were agricultural products (almost half) and energy products. So there is no smell of high technology here. Considering the export goods of other industrial sectors, we can safely say that ~80% of Ukraine’s goods exports are primary goods and low-tech goods with a small share of added value. It is obvious that domestic and foreign investors will quickly occupy the raw material niches, which were active, albeit limited, even during the war, after the war. They will provide the lion’s share of commodity exports. In order to fully realize its potential, Ukraine needs to become an open economy, that is, engage in commodity exports at a rate of 70-80%. The indicator of a dynamic, competitive open economy of Ukraine in 2033 will be the volume of goods exports of ~$250-260 billion; this is three times the IMF’s estimates.

It turns out that, according to the IMF, Ukraine will remain a commodity exporter until the mid-2030s, as well as a place for the production of low value-added goods. This is not the highest or even the first industrial league in Europe and the world. These are the back alleys, back alleys and places chronically abandoned to developing countries for environmental, social and commercial reasons. We know how to enter the market for raw materials and energy products in poor countries with rich oligarchy.

Since the IMF predicts neither privatization nor inflows of foreign investment until 2033, we can conclude that the Fund associates the future of Ukraine not with the systemic modernization of the country, but with the situational reboot of the oligarchy. Already today we see how government officials actively encourage foreign investors in raw materials and energy projects. There is no doubt that in the current decision-making system, government regulations and legal institutions, Ukraine’s VIP managers will be either de jure partners or informal de facto partners. One thing is clear. They are certainly not interested in the full development of the free market, mass entrepreneurship and true capitalism in this system. They will buy the political parties in the country. They will manually determine who will be in key positions to avoid touching the deep state. They will organize flashy, flashy forums at home and finance Ukrainian panels in Davos. Declarations on climate, biodiversity, global challenges and equality will be signed. This will not stop them from becoming terrible agents of the authoritarian Leviathan, destroying the country, demoralizing society. This is exactly what the current government sees as the fate of the country, if, of course, you believe the IMF forecast agreed upon with the Government of Ukraine.

Ukrainian heroes at the front are unlikely to read IMF reports. There is no way they can be distracted by such activities. They fight honestly and selflessly for our freedom and yours. They do not know that the IMF and the Government do not value this freedom in the economy. They don’t know yet.

The author expresses his personal opinion, which may not coincide with the position of the editors. The author is responsible for the data published in the “Opinions” section.

Dzherelo