Anders Aslund says Ukraine’s economy is in good shape
WASHINGTON — Swedish economist Anders Aslund told a packed meeting of the US-Ukraine Business Council on Feb. 5 that Ukraine’s economy is in “very good shape,” but lamented that too few people know the positive news.
Aslund said the budget deficit has now been reduced to 2 percent of gross domestic product, public debt has dropped from 80 percent of GDP in 2016 to 52 percent, and inflation has fallen to some 5 percent. He expects further advances in 2020.
Only last June, he noted, interest rates were 18 percent and they now stand at 11 percent. Aslund predicts “the interest rate will fall pretty soon to eight or seven” while the National Bank of Ukraine had predicted last October that the rate would only drop to that level towards the end of 2021.
Aslund said the better-than-expected forecast signifies “there’s been a radical change …….. and if you have an interest rate of eight percent, then you will have commercial lending probably at 11 percent. And with an inflation rate of four percent, that’s a real rate of seven percent.”
Morgan Williams, the president and CEO of the 200-member business association to which the Kyiv Post belongs, welcomed the prediction saying Ukrainian businesspeople had often complained to him that they were forced to borrow at rates of 22-24 percent and that operating successfully with that kind of burden was extremely difficult.
Aslund gave credit to former Ukrainian President Petro Poroshenko’s government for laying the groundwork in 2016-2019 for the promising economic outlook. He emphasized the importance of creating a land market and hoped that parliament would adopt proposed measures this week to finally allow private agricultural land ownership. Ownership of the land, he said, would open up development cash by using land as collateral enabling loans. He said: “The standard Ukrainian view is that the oligarchs will buy all the land. But the fact is that the oligarchs don’t have that much money and neither are they interested in buying all that land.”
He said that government proposals limit the amount of land one person can buy to 10,000 hectares of land. He did not believe a prohibition on foreigners entering the market would be a drawback because, he said, 100 foreign companies are already invested in Ukraine’s agricultural sector and that is likely sufficient for now.
He said a key measure of whether Ukraine keeps moving forward will be how the government tackles cleaning up the country’s law enforcement. He said in order to ensure investor and business confidence Ukraine had to reform all law enforcement and singled out the Security Service of Ukraine, known as the SBU, and the Customs Service.
Aslund believes it is problematic that 60 percent of banking is in the state’s hands and currently there are only two significant private bankers.
He also said that although there are many reform-minded people in Ukraine, there is nobody who really stands out as a champion of reforms. He said Economy Minister Timofiy Mylovanov probably currently fits best that description.
Aslund praised Ukrainian President Volodymyr Zelensky and his government but criticized him for giving in to attacks against the high salaries of ministers.
“Either you have professional ministers who work for their salary or they are paid in another way,” said Aslund with the clear implication that “another way” led to corruption. “The argument that we should cap the salaries of ministers is harmful,” he said.
As the conference took place on the same day that the U.S. Senate decided the fate of President Donald Trump in his impeachment trial, it seemed inevitable that participants at the meeting wondered how the bitterly divisive proceedings, with Ukraine at their epicenter, would affect Ukraine’s economy and her relations with America.
Three former U.S. ambassadors, John Herbst and William Taylor, who served in Kyiv, and Daniel Fried, were among those attending the meeting. All are staunch supporters of Ukraine and believe that American sentiment among officials and politicians remains firmly behind Kyiv.
Importantly, despite distortions about Ukraine and numerous tirades about corruption in the country, during the impeachment process which began last September, there was still overwhelming support among both U.S political parties for Ukraine, they said.
Taylor was the charge d’affaires, the senior U.S. diplomat, in Kyiv when he was called to testify before the Congressional impeachment inquiry last November. Taylor earned admiration for his courage in defying Trump’s orders to administration officials to ignore requests and subpoenas to appear at the inquiry. His damning evidence left little doubt that Trump had tried to force the Kyiv government to launch a sham investigation into former Vice President Joe Biden. Taylor stepped down from the post in January. The embassy is now run by charge d’affaires Kristina Kvien, but Washington has not yet announced a new permanent ambassador.
As Taylor entered the conference room just before the meeting began, the others present broke out into spontaneous applause. A surprised Taylor beamed a grin at the assembly and drew laughter as he asked: “What’s happened?”
Taylor spoke during a question and answer session after Aslund’s address. He predicted that Stephen Biegun, a businessman and experienced diplomat, who was appointed the new U.S. deputy secretary of state in December, would be good news for Ukraine.
Fried said that a successful Ukrainian economy would be “a strategic disaster for [Russian dictator Vladimir] Putin and Putinism” because Russians would question why their economy was in decline. Seeking the answer, Fried said, would expose the kleptocracy at the heart of the Kremlin and jeopardize Putin’s continued grip on power.
Fried said that Putin would only desist from trying to undermine Ukraine if the cost to Moscow, in terms of sanctions and other penalties imposed by the U.S. and other powers rose sufficiently high.
Aslund said there was already mounting dissatisfaction with Putin because, since Russian invaded Ukraine in 2014, average monthly salaries in Ukraine have increased from $200 to $450 while in Russia they have declined from $800 to $700. He said: “Putin has exhausted his [economic] arsenal.”
However, some at the meeting believed Putin would stop at nothing to prevent Ukraine achieving economic progress. Victor Rud, a prominent Ukrainian-American activist and a board member of the Ukrainian American Bar Association, said it was highly improbable that Putin would stand by as Ukraine headed along an economic and political trajectory that would imperil his rule. “Between now and whenever, Putin is not just going to drink warm beer and eat cold pizza. There have to be initiatives from his end that will forestall or turn things upside down in Ukraine. He has no other choice than to do that,” warned Rud.
Fried did not discount that Putin might consider drastically ratcheting up military force against Ukraine. But he said that the Kremlin has already had to conceal how many Russian soldiers have died in the war that Putin began six years ago. Great improvements in Ukraine’s own military capabilities over the past five years make the war option “narrow and dark” for Putin.