Massachusetts Institute of Technology finance professor Andriy Kyrylenko believes the nation’s Soviet-era command economy is preventing its 45 million residents from living a better life.
The blame lies in the country’s leadership, said the Mariupol city native. “Leaders need to know how to ask for help, build a team, and rely on people around them. There is a saying: ‘A’s hire A’s and B’s hire C’s,’” the economist said in an emailed message on Oct. 14. “The idea being that true leaders are known for selecting better trained, educated, experienced people than themselves and delegating responsibilities to them… Whether a leader’s training is in economics, biology or ancient history hardly matters at all.”
Born in 1967, Kyrylenko moved to the U.S. in 1990 when the Soviet Union, a superpower that included Ukraine, Russia and 13 other republics, was about to collapse. “I was born and grew up in Ukraine – in eastern Ukraine, to be exact. In the underbelly of the Ukrainian Rust Belt, called the Donbas, where people work in ginormous smoke belching factories, eat salted pork fat for breakfast and speak Russian,” he wrote in a blog for the Huffington Post in March.
After obtaining a doctorate in finance from the University of Pennsylvania, Kyrylenko worked for 12 years at the International Monetary Fund. In 2010-2012 he served as a chief economist at the Commodity Futures Trading Commission in the U.S. Afterward, he joined the teaching staff of Sloan School of Management at MIT, whose master of business administration program was recently ranked as the world’s 12th best by The Economist.
“After spending around half of my life in the U.S., I haven’t seriously worked with Ukraine, haven’t been to Kyiv and haven’t been doing anything here,” Kyrylenko said. “But when the snipers started shooting people (during the EuroMaidan Revolution), I asked myself: why am I sitting in the States and deliver speeches at some conferences, while here (in Ukraine) people are being killed, while my professional experience could be useful?”
So he volunteered to become a policy advisor to Ukraine’s Ministry of Finance. “The first question that they asked me was – please explain us how the IMF program (of $17 billion in loans) works,” Kyrylenko said in a lecture at the Kyiv School of Economics on Oct. 6. “I looked at this program and my impression was that it had been developed in three days on one’s knee. It had and still has lots of weak points.”
The program can’t stop the uncontrollable growth of risks. The IMF expects overall public budget deficit to reach $6.8 billion this year, while the stand-alone deficit of Naftogaz, the state-run oil and gas company, will likely be $8.9 billion. Naftogaz critically needs to separate profitable assets from the unprofitable ones, the expert says.
Its bankruptcy may be one of the options. “Naftogaz has been bankrupt for a long time, though still soaking huge resources from the state and the economy. The correct bankruptcy procedure would…recognize the scale of the problem, writing it off (in) the public finance system.”
Kyrylenko criticizes the information policy of the central bank. In the U.S., the communication strategy of the Federal Reserve, America’s central bank, is a tool for guiding the economy, while in Ukraine it remains unclear how the National Bank collects and analyzes information.
“In the U.S., candidates for positions of this level and importance are being prepared not in years – but in decades, obtaining experience both in an academic and practical field, including foreign institutions. For instance, a potential candidate for chairmanship at the Federal Reserve right now is practicing at Bank of England’s Monetary Policy Committee,” Kyrylenko said in an interview with Dzerkalo Tyzhnya, a weekly newspaper.
Meanwhile, he sees the Economy Ministry as a reincarnation of the USSR’s State Plan Agency, “painted in yellow-and-blue colors.”
Most of the ministry’s control functions that it monetizes through corrupt practices should be cancelled, Kyrylenko says. Regarding macroeconomic forecasting that the Economy Ministry used to do, it could be delegated to the National Bank, which is preparing an inflation targeting policy. Preparations include hiring experts on macroeconomic issues to work on the central bank’s staff.
Ukraine’s big trouble is that government officials identify economic policy priorities, says Kyrylenko. “I prefer market self-organization – it’s not perfect, but I have much more faith in it,” he adds.
Kyiv Post associate business editor Ivan Verstyuk can be reached at [email protected].
