Unflagging Optimism Raises Mistrust at Grassroots and Among Investors

Ukraine’s First Vice Premier Mykola Azarov again presented himself to the press on July 17 as the nation’s chief optimist. He has ample reason to do so. The gross domestic product has risen 7.5% in the past six months, with inflation running surprisingly low in spite of a steep price hike for food. In all probability, the GDP will continue to rise because the July growth rate was 8.2%. Also encouraging is the growth of public-sector wages, pensions, and stipends, along with a substantial clearance of government arrears in social payments, including those to Chernobyl cleanup participants. In a word, Ukraine has a very strong financial lever to bring about an unflagging economic situation, Mr. Azarov said. Even the shadow economy has been “legalized” a bit more: lower individual income tax rates resulted in a billion hryvnias a month growth in the wages and salaries handled by banks.

Yet, something in this tide of governmental self-congratulation involuntarily raises doubts. Perhaps it is the assessment of the so- called food crisis which marked up prices, when all the blame was put on some unnamed politicians who blurted out the information about a crop failure, instead of reporting to and asking the government for money sufficient to avert this disaster?.. Or is it the heartfelt phrase that “underestimating government actions is tantamount to political myopia?” Or is it condemnation of differing views expressed by governmental and banking officials in their public speeches? In other words, the credo seems to be, “ the population must not know” about negative economic tendencies. Was this not that same ideology already once dominant here?

Mr. Azarov was also asked about the projected hryvnia exchange rate next year, a subject of no small consequence for the public at large. It should be noted that journalists learned shortly before that the National Bank proposed raising the 2004 average expected rate of the national currency to 5.40 per dollar (although the previous forecast for this year was far worse, 5.52 per dollar). Of course, a forecast should not be relied upon blindly, even if it is very cautious (incidentally, The Day’s sources claim that this NBU forecast is also pessimistic). But, knowing all this, is it a good idea to fall back on hackneyed phrases about respecting the National Bank’s opinion? Why should the national currency’s exchange rate be falling if there is no inflation, a favorable trade balance, and a steep GDP growth (and all the forecasts says this will continue next year)? When the government keeps silent, answers come in the form of rumors. That the latter is a strong argument has been shown by the food crisis.

Should we then wonder why, despite good macroeconomic results, mistrust toward the government’s financial policies still exists inside and this country and out?