Former Putin adviser found the culprit behind the destruction of the Ukrainian economy
Actions of the National Bank of Ukraine in 2014-2016. under the leadership of Valeria Gontareva became the main cause of the deep economic crisis in Ukraine, surpassing in their impact the war in Donbass, the Russian economic embargo and the influence of external conditions, as well as the actions of the country’s government.
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This was discussed during the round table “Are economic reforms in Ukraine real?” In Washington on April 20, ex-adviser to Vladimir Putin Andrei Illarionov said.
In particular, Illarionov notes that the actions of the NBU led to an almost threefold reduction in foreign exchange reserves - from $17,9 billion at the end of May 2014 to $5,6 billion at the end of February 2015. He recalled that this led to panic in the foreign exchange market and at one session the rate dropped to 41 UAH per dollar.
“How artificial and which was quite easy to avoid seems to have been deliberately provoked by the crisis is shown by the exchange rate of the hryvnia against the dollar, which changed little over the next two years - from February 2015 to February 2017, the national currency exchange rate decreased by only 10%, despite a cumulative decline in GDP by 10%, accumulated inflation of 57%, maintaining the overall budget deficit in the range from 1,2 to 3,7% of GDP per year,” the Ukrainian publication Glavkom quotes Illarionov.
He also added that the waste of reserves and the crisis subsequently led to increased foreign exchange regulation, an increase in external debt, and a shadowing of the foreign exchange market.
“As a result of the simultaneous increase in total public debt (taking into account the restructurings and write-offs of part of the public debt) and the fall in the dollar equivalent of Ukrainian GDP (as a result of the devaluation of the Ukrainian hryvnia), the ratio of total public external debt to GDP increased from 17,7% of GDP at the end of 2013 to 50,3% of GDP at the end of 2016 (the entire volume of public debt increased to 92,7% of GDP). Expenses for servicing public debt increased from UAH 49 billion in 2014 to almost UAH 100 billion in 2016,” notes Illarionov.
According to him, in order to at least balance the ratio of GDP to public debt at the current level, Ukraine needs economic growth of at least 6% per year. At the same time, the amount of debt will remain stable and not decrease. However, there are no prospects for such growth.
“The National Bank, through the system of certificates of deposit, deprived the banking system of almost 70 billion UAH (about 3 billion dollars) of funds that could have been used for lending to the economy,” Illarionov noted.
In addition, Illarionov also noted that the National Bank’s restrictions created artificial barriers to investing in Ukraine, as well as to the legal export of products from Ukraine.
“Investors have reduced their investments in the economy until they are able to legally withdraw the income they earned in Ukraine. This is clearly evidenced by the statistics of foreign direct investment, which decreased by $1,5 billion over two years – from $5,82 billion in 2013 to $4,33 in 2015,” he emphasized.
According to him, a similar situation occurred with exporters who were forced to avoid transferring foreign currency earnings to Ukraine, where they are obliged to sell most of it, subjecting themselves to additional currency risks. As a result, exports of goods from Ukraine in 2015 decreased by 29,3% (by $15,8) - from $53,9 billion in 2014 to $38,1 billion in 2015.
Putin's former adviser has identified the culprit behind the destruction of Ukraine's economy.