Nation will easily withstand second wave of crisis

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Oct. 10, 2011, 12:17 p.m. | Op-ed — by Vasyl Horbal
Europe is experiencing major economic turbulence. The debts of Greece and other nations are threatening the fate of European banks, which had bought billions of highly profitable securities that seemed safe because they were denominated in euros. Many experts are once again talking about 2008. Then, the crisis also started far away from our borders, but hit us harder than many others. So there is no surprise that many in Ukraine are worried that we will be affected by the new European problems.

However, this is 2011, not 2008. The current situation is complicated but there is no reason to panic.

First of all, the crisis might not happen in the acute form that many expect. Three years ago the main turbulence came as an aftershock of the bankruptcy of the American investment bank Lehman Brothers on Sept. 15, 2008. The panic that ensued because of the collapse of one of the pillars of Wall Street seized all the markets. The collapse of a European Lehman Brothers with a vast number of faulty securities in its portfolio could be a trigger this time, too.

But the European Union understands this. And, despite the complicated decision-making in the EU, it will save banks from bankruptcy and the financial system from a collapse. No matter how many billions of euros of financial assistance are pumped into Greece and other debtors, a new crisis would be even more expensive.

Today’s Ukraine is also very different from three years ago, when the crisis surprised the government. There was no consistent anti-crisis policy and anarchy ruled the government organs. Now Ukraine has political stability and is ruled by a cohesive team, which had time to prepare for the trouble.

Nor is Ukraine anything like Greece. We have passed our period of unrestrained expenditures, of living beyond our means, and consuming above our income. We’re not as vulnerable any more.

In the first six months of 2011, the negative foreign trade balance was $6.67 billion. This is not small, but three years ago the same figure was $11.05 billion. Moreover, the main problem of Ukraine's foreign trade is high prices for imported gas, which hopefully will be reduced.

Three years ago, Ukraine kept taking on more debts, but now it's paying them off. The government even feels strong enough to pause cooperation with the International Monetary Fund by turning down its demands, which are currently too tough for the population.

In 2008 the National Bank had to refinance some problematic banks with billions of hryvnias to prevent the collapse of the financial system. Today the NBU is not refinancing anyone.

The banking system is a lot more prepared for any problems now. The crisis burned out anything non-competitive and inefficient. The banks were well immunized by surviving 2008, and are now tougher and stronger. They have no risky assets that can lose value in case of a new financial crisis. And, because the peculiarities of Ukrainian laws, even the bankruptcy of parent banks in Europe will not reflect on them.

But the most important thing is that the government is set to support the currency, the hryvnia, and won't allow its devaluation.

Nobody here is interested in destabilization. The horrible memories of three years ago are still too fresh.

Even exporters who seem to win when the hryvnia gets weaker will actually lose out more because they have to import spare parts, equipment and energy sources.

Of course, an effective peg to the dollar is not too good for an open economy like Ukraine's, where the share of export is very high in gross domestic product. But the main thing is to keep the currency stable.

However, the government efforts will not be effective without public support. The main risk Ukraine could soon face is in people's heads. Belarus comes to mind a recent example of how destructive panic and irrational behavior can be.

The NBU, which recently introduced new limitations for exchanging hard currency to fight illegal hard currency trade, is doing it as an insurance measures. Perhaps it's a little over the top, but in this case it's better to be safe than sorry, when the fate of the hryvnia is at stake.

Of course, the next few months may be tough. If our neighbors get into trouble, Ukraine will not be able to remain a peaceful oasis with no trouble at all.

But we can feel safe until Europe gets its own Lehman. And even in the worse-case scenario for Europe, Ukraine is quite able not to import the crisis in full.

Vasyl Horbal is a member of the National Bank's Supervisory Board, a parliament deputy from the Party of the Regions, and a former governor of Lviv Oblast.
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