Innovation - is a historically irrevocable change in the method of production of things.
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Forecasts

IEE Forecast. Ukrainian economy is most likely to remain excessively dependant on tools of economic policy in 2005


To construct economic forecasts in Ukraine is both easy and difficult. It is easy, because tools of economic policy clamp our economy. Therefore during the short-term and intermediate term period economic dynamics will directly react to a policy of the Government and National bank. (This factor increases risk of serious economic shocks in the long-term period). It is difficult, because the policy of the Government and National bank is difficult for foreseeing. For many key markets are still at the first stages of development.  That is why the mentioned institutions have no high-grade contact with these processes.While supplying its fiscal policy, the new Ukrainian Government may come across a serious problem - resistance of the existing institutionalism to the interactions of legal and shadow financial streams. The problem will directly concern the process of receipts to the State budget.The former Government and economical bodies interacted while good tax laws were absent.  But for usual, they have provided institutional tools of fiscal withdrawal of the means. The tools worked in a narrow spectrum of "grey" financial streams. That became possible because of the consensus, which has established some peculiar balance of interests of the state and economic bodies. The institutional mechanism differs from the market; it works rather successfully only on linear sites of a trajectory of economic dynamics.  So, it works when rates of economic growth remain without essential changes. However, when the rates of economic growth change sharply, the receipts of the State budget fail. (i.e. in the beginning of year 2004)Notice, that failures of receipts to the State budget caused by action of this not absolutely usual fiscal tool, refer only to phases of economic growth acceleration. When the economic growth decreases, fiscal pressure on economy should amplify, which is logical. The Goskomstat official data about rates of economic growth come with a significant delay (for such is the technological processing of information in the country), and our fiscal mechanism "is blind" during the period of the delay. It continues to work by inertia, withdrawing volumes of means according to conditions of the previous period under the approved plan. And only having received (with a delay) the signal from official bodies about the changed conditions it  is corrected according to these new conditions.It is possible to stop the lacks of this mechanism by putting in order the tax laws and so bringing shadow financial streams to the light. However today it became an extremely difficult problem - for the problem is too complex. Today, the rates of economic growth decrease (the economic is cyclic-phase). The described mechanism should withdraw fiscal means according to higher rates of economic growth of the last year by inertia. But the enterprise sector "has carried" as the Government members changed. Now it is possible to complain to the new government any time, however it does not solve a problem. It is not difficult to predict, that the means will not come to the State budget owing to decrease in rates of economic growth. Accordingly, the growth of deficiency and a debt are inevitable in this situation too. It is also easy to predict the termination of the period of " fiscal calm " for enterprise sector if to consider diplomatic remarks of the international financial organizations on necessity of reduction of deficiency of the state budget of Ukraine below 2 % from gross national product.However, this problem can be solved rather quickly and in a civilized way. For that we need to start creation of more perfect mechanisms for economic forecasting in parallel with process of perfection of the tax laws. Which means to create and maintain the market of forecasts with "embedding" of prognostic mechanisms into the mechanisms of operational planning of tax revenues in the State budget.As to monetary tools of economic policy, key factors of management have changed for better. Management professionals at last have returned and replaced politicians.  However, it will be uneasy even for professionals to support economic dynamics within the limits of optimum corridors of economic parameters. It is so because the introduction of Ukraine into the international trading organizations may become a test for bank system and the whole Ukrainian economy. As rates of credits percent remain high, it will be impossible to start investment processes on the basis of an innovation in 2005. Unless the State policy is directed to support the system of the innovative process.Unfortunately, most likely, it will not happen either. Such policy means effective priorities of the innovative development corresponding logic of processes, caused by a system innovation. To start such priorities we need effective mechanisms of their formation. And we do not have them, for the poor state resources which have been released not for innovative, but traditional sector both science and economy.It means, that there is high probability that investment processes in economy will be carried out with accent not so much on the credit, but due to incomes. An expensive credit will support the bank system, which is still weak. It will also reproduce the available traditional intermediate and final consumption.The structure of final consumption indicates, that there is no innovative process in Ukraine (other indicators come from a share of the world markets and innovative goods of countries, etc.). When there are innovations, households and other investors aspire to invest into it, as they are sure to get high profit. If innovative process is absent, the investor aspires to invest into a favorable sphere, but it means long-term expectations. In Ukraine people invest into real estate and a number of other positions (which are not numerous, i.e. cars purchase). If final consumption is excessively deformed in favor of the named positions, it  indicates the absence or slackness in the system innovative processes of the country.Though here there can be exceptions, i.e. a significant foreign investor will wish to carry out the innovative project in Ukraine.High percent rate under the credit means low money offer. It also means low monetary level (about 40 %, the norm is 60 %). Though paradoxical it may seem, a discount rate, remains at a level below market cost of money for a long time.In this situation administrative measures to downturn of credit rates are doubtful for they are an encroachment for incomes of banks. Banks should lower the rate under pressure of the market and owing to growth of a profit turn in economy.Big break between a discount rate and the rate under the deposit signal also, that National bank of Ukraine (NBU) with a view of struggle against inflation has greatly influenced the monetary market. Otherwise, there should be explanation to a question why goods at the monetary market have smaller price, than savings of people.  Notice, that the seller (NBU) may satisfy any demand for money, but the market price of money remains high.Otherwise it is easy to assume significant latent (suppressed) inflation in our economy. That is, if with other things being equal, the offer of money were normal (up to normal value of monetary factor 60 %) and if the monetary market were completely liberalized (i.e., NBU monetary resources became completely accessible for commercial banks), we would have much greater (true) inflation rates.If this assumption is true, Ukraine experiences not struggle against inflation, but its concealment (suppression). For real, high-grade struggle, we need developed economic structure with a required innovative system. All aforesaid raises probability of the forecast.- In 2005 Ukrainian economy is most likely to remain excessively influenced by tools of economic policy; - Most likely, innovative processes, capable to bring Ukraine forward at any commodity or technological sphere will not start in 2005.

IEE

I. Makarenko.

Posted on the website: 2005-03-01

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