What reforms are necessary for the survival of Ukraine

Sergey Yakubovsky

Odessa, December 17, 2014 – Sergey Jakubovsky, PhD, professor, teacher of Mechnikov ONU, said at a briefing on the current economic situation in Ukraine, the possible reform program and the impact of reforms on the exchange rate.

The crisis escalates. Now for the story, for the future of the country, is currently the most important. Ukraine came to the border, where, if it does not move, the possibility to keep the country will not.

The fact is that after the Revolution of Dignity the European Union and the United States gave a huge credibility for the country. We have received economic, military and moral support. Action plan was signed, paving the way, spelled out the steps on how Ukraine can move closer to Europe and to become a part of the European Community. In the West, were convinced that the words on the choice of Ukraine consistent with its actions. We showed to the world that the reforms are underway, and they are effective. For example, the indicators of the company “Metinvest” increased by 46% in the first half of 2014 compared to the same period in 2013. Profit amounted to 460 million dollars, the country exports exceeded imports. It all looked very favorably.

But in November of this year in the country, the IMF mission arrived and saw what had not previously been shown to Western partners.

The country has rapidly increased the volume of transactions with an offshore jurisdiction. The volume of offshore companies increased by a quarter. This allowed companies to avoid paying taxes, and increase profits. The state, as a result, did not receive 204 billion UAH. At the request of the deal, the head of the tax department said that 50 thousand office staff are so busy that they cannot do it.

About 40% of public procurement in Ukraine are not on a competitive basis, but provided the tender procedure. At this lost 40 billion UAH. In fiscal pits sieves has become even worse. Through them passed 300 billion UAH and the loss amounted to 70 billion. The IMF mission left Ukraine, realizing that deal with the Ukrainian government is meaningless. Revenues in the economy are distributed according to the same patterns that were in the government of Azarov, moreover, they have become even more sophisticated.

Who can buy dollars at 20, 21 UAH? As you can see, there are people, who toss billions, and they may well afford to buy dollars at this price.

Exchange control was also ineffective. December 1, plummeted to the lowest foreign exchange reserves of the country – up to $ 10 billion. The effect of their spending was negative. Increased energy shortages. This is despite the fact that over the last 2 months of energy were spent 2 billion dollars.

But the United States decided to give Ukraine a chance. A few weeks ago, visited Ukraine, US Vice President Joe Biden. But instead, Ukraine should refuse to perform its own economic policy. Poroshenko and Yatsenyuk have shown that when decent people get the government, they either leave it, or move on shady schemes.

US demanded in exchange for supporting appointed Minister of Finance and Minister of Economy non-Ukrainians. These people will have to offer a program of reforms in Ukraine, meeting the requirements of the international community. This task should not only be delivered, but also to be performed. Yatseniuk pretended that nothing had happened between Europe, the US and Ukraine. European Commissioner gave Ukrainians clearly understand – will help, but only if economic reforms. The task of Minister of Finance and Economy is to break the economic system, which was built here for 23 years. Those proposals for changes in the tax system, which will be submitted to the Parliament, aimed at to break down what it is.

A week ago, the media began campaign against the reforms that the government supposedly offers. In this way the existing system is trying to protect itself.

What reforms can offer the Ministry of Finance?

First of all – all financial operations should be conducted openly. Need to define a property in Ukraine. In an economy in the non-banking system is 91 billion dollars. In the official accounts of the same order are $ 20 billion dollars. According to an embodiment of the adoption of reforms, from January 1 to April 1, every Ukrainian can declare his property. Money should be in the banking system. All funds will be considered official and no one asks where they are.

Further, if the purchase would exceed the official income, it will be taxed at 30 percent. This will solve all the problems of the banking system.

Also, it is possible the introduction of a property tax for legal entities. Now only citizens pay it.

Must change and taxation of entrepreneurs, who are on a simplified system of taxation. For them should be compulsory use of cash settlement units 2 and 3 groups, that is, for those entrepreneurs, who use hired labor or selling imported goods. In this case, the single tax will remain.
Entrepreneurs of the first group, those, whose income does not exceed 150 thousand UAH per year will remain unchanged.

Health Care. Medicine we have free and it highlighted huge money. But nothing has changed in the distribution of these funds. As before, they are isolated in terms of hospital beds. They can write a lot. No one controls the quality of services provided. In Moldova, Georgia, poor people get free insurance from state-owned companies. The rest choose between private and public insurers and pay dues. Health facilities will receive money based on the number of services rendered.

The reform of the higher education system. In Ukraine, there are more than 800 universities. This is 10 times greater than in Germany. 60% of high school graduates now enter universities. In the USSR, this figure was 20%. Students receive a poor education. And it causes significant damage to the economy of the country. People get diplomas without content. At the same time the cost of education is low due to dumping.

The overwhelming part of the training wants to make toll on the American version. Anyone can learn for free, but before that he has to sign a contract with a banking institution, to which he later will pay the cost of education.

Most of the deputies will be against such changes, it is therefore proposed to take the entire package that parliamentarians have not figured out who of them may lose, and how much.

If the reform does not take place, Ukraine will repeat the fate of the USSR collapse, as Russia later. By March or April, if things continue as they are, in Ukraine will remain 2-3 billion dollars. Gold reserves, then followed the collapse of bank-financial system, as happened in the Soviet Union. Now in Ukraine, people withdrawing money from accounts. State banks are deteriorating day by day. Income levels will decline. On this basis, it will be easy to promote the idea of revolution. If during the year the government does not support the population and will not reform, Ukraine will not be, it will be torn apart by the centrifugal forces.
But it is possible that due to the efforts of the IMF, the US and the EU will be able to save the country. Deputies at the same time have to sacrifice part of their millions. After all, the collapse of the country could lead to a much greater losses among their states.

But will still be part of the society, who dreams to save the current state of affairs, when the money they made out of thin air.

They will disburse new performances, to pay people for speaking out against the reforms.

In February, thousands of people were ready to give life. In the summer they gave those lives. Now simply agree to eat less.

When the prime minister, president and CEO of the National Bank see as through offshore companies go tens of billions, and do nothing – it is a crime. Now no one controls big business. If you just cut health care and education, the oligarchs will not cease to export billions, reforms are meaningless.

If the reforms will not be – we are waiting for the fall of the hryvnia to infinity. If reform will – the demand for dollars will decrease. Billions of tax pits become legal, and they will not have to buy dollars.

12-13 UAH – a real market rate. This is stated in the memorandum between RBM and the IMF. Nobody punishes illegal currency transactions. We must show that for such operations can be adversely affected.

The course is growing at currency dealers because dollars are bought on the illegal hryvnias. The elimination of the tax cut pits illegal hryvnias. In the meantime, all the non-cash hryvnias converted to cash and buy dollars on it. There is no other way for people associated with past and present government. They fear losing their job.

If the government does not respond to the collapse of the conversion centers and the presence of a billion-dollar, it means they are satisfied. Government understands that all for it can be over quickly, so take the maximum. What is happening with currency – beneficial for authority, it is advantageous for oligarchs, and not only beneficial to the population.