Reduction of inflation should not be an end in itself, in the current situation in Ukraine, the main thing is economic growth. This was stated on the air of “Radio Svoboda” by the chief of economic programs of the Institute for Social and Economic Research Yaroslav Zhalilo, commenting on inflation expectations due to the economic blockade of Donbass and the deferral of a tranche of the IMF assistance.
– The state budget laid the index 8.1% inflation rate, Petro Poroshenko said that inflation this year is unlikely to exceed 10%. How optimistic is the president's forecast or is it realistic?
– The fact is that the inflation in itself is simply a monetary indicator and it makes sense only if we consider it in the context of other indicators. We can reach the index of 8 or 10% of inflation. However, at the expense of what? Due to such an active monetary policy, anti-inflationary policy, which, on the other hand, will impede the economic growth. Since we now need a severe structure restructuring, associated with the adaptation to the changes and flows that have occurred, it turns out that this structural change should affect the depreciation of the Ukrainian hryvnia and, accordingly, has an impact on inflation indicators.
If we again put this target, say: eight plus or minus two percent, and we try to follow it first, then really, we can come to the point that the target will be reached, but the growth will be minimal, or there will be even more problems with the economic fall.
Therefore, I think that in this connection, the IMF should also analyse: what is the target to exhibit in order not to suppress the economy in the regime of structural changes. Moreover, the government structures, the National Bank, are thinking about this issue today.
– Inflation is usually spoken by the consumer price index. Let's go from the words "target" to the prices. What prices can be and how much can they actually grow on store shelves?
– The fact is that the consumer price index is the target, so there is no contradiction here. Here you can continue this thought and talk about what the structure of price growth will be. That is, what will be affected by these problems that have arisen because of the so-called "nationalisation" of Ukrainian enterprises on an uncontrolled territory. I think that an increase in the costs of electricity and heat producers may lead to the need for a further increase in tariffs for these services for the population. If this leads to a reduction more than the planned rate of hryvnia, then it will be a devaluation effect that will affect a wide range of prices. Moreover, the third, there is the opposite point, it is a matter of braking economic dynamics. That is, the corresponding decrease in revenues, the difficulty of spending from the budget - this will be a brake factor for economic growth. However, on the other hand, this will slow down demand, that is, the inflationary effect will be slightly extinguished from above. Therefore, in the case of a balanced government policy that will not warm up populist moments, then I think that in principle it is possible to keep within 10-12% of inflation.
– This you are talking about the influence that can be on inflation and the economy in connection with the nationalisation of Ukrainian enterprises in the occupied part of the Donbass. However, regarding the pause taken by the International Monetary Fund in cooperation with Ukraine, we know that there were delays with the allocation of trenches before. In particular, the second tranche was in August 2015, and the third - only in September 2016, that is, more than a year, Ukraine did not receive money from the IMF. Moreover, now a considerable attention is paid to the postponement of the consideration of the IMF to the Ukrainian question. How big is the risk of accelerating inflation?
– I honestly do not know who pays much attention to this. I think that basically journalists do it. You correctly noted that we have a lot of such examples, there is no criticality in this issue. It is important here how further cooperation will go, as this year it was planned to receive several tranches. Moreover, this is important because we are approaching the periods of increased payments for external debts, so it is important that after all this cooperation with the IMF is not interrupted and we continue to receive funds. Moreover, it will be now, in a month - this is a purely technical issue, I would not exaggerate this point. The IMF is absolutely right in this regard that it is necessary today to carefully study the changes in circumstances because Ukraine today has lost some of its production capacities, and these conditions should be reflected in those beacons that the IMF exposes. That we do not aspire to achieve them most, despite the fact that it will be harmful to the economy so that there is a certain balance. Therefore, the process is still positive. It is important that Ukraine also joined the definition of new levels of desired indicators.
– What steps should the government and the National Bank take in the current conditions to limit price growth and strengthen the national currency?
– First, it is necessary to increase attention to anti-inflationary policy and, most importantly, to shift it from monetary to non-monetary leverage. That are government steps to de-monopolization, control the appetites of monopolists, market regulation, and so on – to prevent inflation heating up. The second point, it is necessary to intensify, perhaps even at the level of state investments, the process of structural changes in those consumers who have lost coal from the occupied territory. Maybe, it should try somehow to support metallurgical enterprises.
Moreover, the critical point is that in fact, part of the raw materials that the companies lost in the occupied territory are iron ore, coke or coking coal, as well as coke production capacity, they are in principle on the Ukrainian territory but belong to different industrial and financial groups. Moreover, so now it is critical to initiate the formation of a transparent market for this basic raw material. That is, in fact, in simple language, the oligarchs need to agree among themselves on how to exchange these capacities and jointly prevent an excessive fall in production.
I think that in this case, the state could act as a good moderator, this is a tough task.