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Interview with National Bank Governor Serhiy Tyhypko
By Journalists of Parliamentary Newspaper Holos Ukrayiny
Holos Ukrayiny, Kiev, Ukraine, in Ukrainian 19 Mar 04; p 4, 5
BBC Monitoring Service, UK, in English, May 07, 2004
KYIV - Ukraine's policy in foreign trade relations should be pragmatically
patriotic, National Bank of Ukraine governor Serhiy Tyhypko has said.
Speaking in an interview with a Ukrainian daily, he said that Ukraine could
slow down its debt payments to the IMF and other international
organizations, using the money to develop the domestic infrastructure.
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The state should create a system to protect Ukrainian exporters, reduce
company profits tax, strengthen the hryvnya and start using it as money of
account, Tyhypko said. As regards the presidential election, Tyhypko expects
Viktor Yanukovych or whoever is prime minister at the time of the polls to
stand the best chance. Tyhypko vaguely hinted that he may run for
presidency.
The following is the text of Serhiy Tyhypko's interview with journalists of
the parliamentary newspaper Holos Ukrayiny published on 19 March 2004;
subheadings have been inserted editorially:
On 17 December, the Supreme Council [parliament] of Ukraine appointed Serhiy
Tyhypko as chairman of the National Bank of Ukraine on the initiative of
president Kuchma. Over this period, Ukraine's gold reserve has grown by
about 50 per cent. The hryvnya has taken a steady trend to strengthen. Being
the leader of the Working Ukraine party, Serhiy Tyhypko is sure that it is
the party's duty to care about the poorest.
TAXES
[Correspondent] The tax rate on individual income has been reduced to 13 per
cent since 1 January [2004]. Everyone hoped the new rate would enable people
to work more efficiently, earn more and pull the economy out of the shadow.
However, the pressure on the payroll fund remains unchanged. What do you
think about it?
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[Tyhypko] Our move to introduce a 13-per-cent tax rate on individual
income
was very important. "You are leaving us behind," our colleagues say in
Poland, from where I've just returned. It's only natural for us to make
further comprehensive moves. As long as taxes on company profits remain
where they are, employers are not interested in changing the situation.
I think the Supreme Council has good reason to make further steps in this
direction. Why? I've had a talk with Finance Minister Mykola Azarov. He is
going to analyse real revenues pending the end of the month. In February,
for one, we did not rule out the possibility of a serious failure but it
never happened. March and April will show how the new tax rate works. Should
it be okay, I think we'd carry out the next move to reduce taxes on
enterprises. There's one axiom to follow: to avoid tangible social problems,
rapid and serious changes should be timed to a period of economic growth.
"ECONOMIC NATIONALISM"
[Correspondent] Our imports grew by 34 per cent in 2003 compared with 2002.
On the one hand that is good but on the other hand... [ellipsis as
published] We thereby put pressure on our producers and cut jobs. What do
you feel about the collocation "economic nationalism"?
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[Tyhypko] Before we draw conclusions, we should sort out the pattern of our
import. If we see a rapid rise in the import of machines, save cars, it's a
very good sign. It shows that the 32 per cent rise in investment in basic
assets achieved in 2003 went into economic development. Unfortunately, our
home-made equipment cannot provide international standards of production and
be as cost-effective as equipment imported from the European Union. Yet
everything is in our hands.
We are saying today that the population's incomes are growing. Whoever may
tell me that living is poor - it is really hard - but the population's
incomes are on the rise. Having a high consumer demand for some imports,
such as television sets, refrigerators and cars and being a sound-minded
state, Ukraine should set clear-cut border-crossing conditions to ensure
gain. We need 10-15 per cent [import tax rate] to be able to help
pensioners, teachers and doctors. This is a serious challenge.
As regards "economic nationalism", it sounds fine to me. The phrase is quite
normal, pragmatically patriotic and has the right to exist.
[Correspondent] Faulty macro-forecasts that underlie our budget calculations
cast doubt on economic growth. Could you please specify government revenue
estimates for 2003 in this context? (The first month of 2004 showed that the
Economics Ministry had again made a miscalculation of 200-300 per cent.)
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WHAT ARE THEY SPENDING MONEY ON?
[Tyhypko] I would not dramatize the situation. You can see governments
playing a conventional game with parliaments practically in all states. The
government always tends to offers a pessimistic forecast to avoid extra
responsibility, while parliament tends to be as optimistic as possible. The
best option is to offer an absolutely realistic budget, so the authorities
don't fool people giving promises that they cannot deliver.
As a result, the government cannot spend a single penny on anything in
excess of what is prescribed in the budget. The budget is the key economic
law of the year, it lays down everything. Should extra revenues turn up, the
government will put forth proposals to parliament on how to spend the money
(whether to make the budget socially or growth-oriented).
This is a normal approach. Otherwise, we could raise wages making people
wait for money that would never come. The government is declaring growth of
9.5 per cent this year. I would rather not jump to conclusions but, should
we meet this target, budget revenues will increase. Those revenues could be
spent on raising minimum wages or other things. For instance, infrastructure
problems need to be settled lest they seriously set back economic growth in
the future.
EXPORT PROTECTION
I mean establishing a state mortgage company to make a "breach in the wall"
of mortgage procedures with its head. We have no export insurance company to
date. Domestic manufacturers and exports are protected in France, Italy,
Germany and others today. As regards our machine builders, wherever they go,
they ask for prepayment and, therefore, lose tenders.
I think we need to create a bank for small business loans that could create
lots of jobs. We could think seriously about specializing state-run banks or
selling them.
We have more or less learned how to plan the budget but we must admit it to
ourselves that this one is a budget of consumption.
[Correspondent] The funding of our state institutions is somewhat strange.
During the first few months, the institutions get very little money and
cannot work normally. In the second half [of the year], money flows in over
the odds. It should be spread evenly.
[Tyhypko] This is a Ukrainian disease. We've had it throughout the past 12
years. First we fund social expenses and then everything else. I think it's
an error because public consumption gives tremendous impetus to economic
growth. There are very easy ways to change it. It's only natural that
revenues come in better during the second half of the year. The Finance
Ministry should think it over. For instance, they could take credits with
nine-month repayment.
[Correspondent] Could the National Bank of Ukraine take charge of crediting?
[Tyhypko] No, it couldn't. According to the law, the NBU can neither credit
the budget, nor any other enterprises. We can only credit commercial banks.
Government securities are the best guarantee for us. I think these
procedures still have to be finalized in the state.
[Correspondent] As head of the National Bank of Ukraine, do you feel the
approach of the presidential election [scheduled for October 2004]?
[Tyhypko] Not yet. No parliamentarians are bothering me as yet with
unreasonable politicized inquiries. In addition, the government is working
well, following the logic of economic sense and staying outside politics.
The only sign of the upcoming election is that we cannot work with
parliament as closely and effectively as we'd like to do.
[Correspondent] Some experts see a vigorous outflow of currency from
Ukraine. Could the National Bank comment on this?
[Tyhypko] I can give you some figures. In January-February 2004, our
currency receipts were up 35 per cent year on year. Starting from 6,938m
[dollars], the National Bank has increased its monetary reserves to 8,660m
[dollars]. Business has learned to work in parallel with political events
and it's a good thing. We have elections every two years, expecting
something extraordinary of those elections. But noting extraordinary will
happen. Business will work on as usual.
NATIONAL DEBT
[Correspondent] What could you say about the dynamics of national debt
repayment? Have you given up your idea to reduce Ukraine's debt to the IMF?
[Tyhypko] I'll dwell above all on bonds. I think it was a success. There's
only one thing I dislike about it: we switched from 10-year bonds to
seven-year ones. We should have switched from 10- to 15-year bonds.
Our companies are now entering loan markets without a state guarantee. It is
very important for us to get such signals that will influence the level of
borrowing. I think at least four banks are entering such a market.
Speaking about state debt, the logic is plain. When everything is good and
the economy is on the rise, we should be thinking about ways to pay debts.
But when the indicators are deteriorating and the economy declining, we
should think about changing our legislation. We'll certainly have to cut
back for a while. During this period, we should be borrowing to cover budget
deficit.
For instance, the USA has a budget deficit of 3.5 per cent. Up to 5 per cent
is planned for next year. Alongside this, reforms are going on.
We have another alternative. Our foreign debt is about 26-27 per cent of
GDP. The European Union accepts up to 60 per cent as normal, leaving us a
margin of 35 per cent. If we channel part of it into infrastructure
development, we'll make for our growth tomorrow. I don't think it would be
much of a problem for us, provided we borrow, for one, 500m dollars to be
invested in an export insurance company that could kick-start our machine
building. The issue of an early repayment of debts to the IMF remains open.
I won't expand on it. I just think that the ball is in the court of the
Cabinet of Ministers. Our optimistic outlook appears to be right so far. Up
to now, everything has been following the National Bank's scenario.
DOMESTIC DEMAND AND STABILITY
[Correspondent] Which appeals to you more: enhancing living standards by
raising state support through state outlays or brining the minimum wage up
to subsistence level? What do you think about Yanukovych's idea to "set our
sights on raising the size of the average wage"?
[Tyhypko] I will start with domestic demand. It's a serious problem that may
ensure our stability in the future. We have an export-oriented economy; our
export is very serious and our stability hinges only on growth in domestic
demand, which should reduce our dependence on export. Therefore, I think
this is an extremely important challenge. Let's keep it in mind that export
accounts for less than 15 per cent in the European Union and the USA, while
our export is steadily over 60 per cent.
Their economy can digest huge volumes on its own: foreign markets are a good
thing but they place their domestic consumption above all. As regards
minimum wage, I think it's important that minimum and average wages should
be raised in fact, not in word. Speaking about a solidarity-based society,
we should certainly care about the poorest, make steps to help such people.
It would not only be humane to them but also good for the state: those
people have nothing to save. As soon as they get the money, they will use it
to buy Ukrainian goods as they don't use foreign products.
PARTY-POLITICAL TIES
[Correspondent] Mr Tyhypko, you are not only the head of National Bank of
Ukraine but also the Working Ukraine party leader. Why did you choose this
particular party? Did you have proposals from other political structures?
[Tyhypko] I certainty had a choice. Why I chose Working Ukraine of all
parties? Because it was a pretty well organized Labour-type party. I see a
European future for Ukraine behind it. We'll be moving in that direction to
develop solidarity, care about the poorest and economic growth, support our
enterprises making them competitive and able to pay taxes and wages.
[Correspondent] You have slightly touched upon party-political problems.
Looking from the outside, we can see three or four centres of influence:
[Working Ukraine faction leader Ihor] Sharov, [media magnate Andriy]
Derkach, you and [President Kuchma's son-in-law Viktor] Pinchuk. How could
we sort it out?
[Tyhypko] Don't let us jump to conclusions. I've never been and will never
be a puppet. If necessary, I can easily show my character.
PREMIER TO WIN PRESIDENCY
[Correspondent] What is your vision of political developments until the
presidential elections?
[Tyhypko] Changes to the constitution and the law on elections, including
local ones, will be voted in. The polls will be conducted on a proportional
basis. I believe the [pro-government parliamentary] majority will reach
consensus on a single candidate.
[Correspondent] How realistic is it to speak about a single candidate today?
[Tyhypko] It is quite realistic, provided political reform gets through.
[Correspondent] Who stands the best chance in the majority?
[Tyhypko] He will stand the best chance who is the prime minister at that
time. I think it will be Viktor Yanukovych.
[Correspondent] Do you admit that a new prime minister may come in April?
[Tyhypko] No, I don't. Even if political reform fails, an absolutely new
game will start.
POLITICAL REFORM
[Correspondent] The People's Choice parliamentary group is being associated
with Working Ukraine. Most of its members are from Luhansk and have good
contacts with those from Donetsk. Speaking in an interview with the Zerkalo
Nedeli weekly, Mykola Tapochka said that he didn't view Yanukovych as the
best choice as a single candidate [from the propresidential parliamentary
majority]. For his part, [political analyst] Volodymyr Malynkovych told one
publication that the future president should be an arbiter in political
reform, while Yanukovych has no such qualities. How could you comment on
these statements?
[Tyhypko] We really have very close relations with People's Choice. We
coordinate virtually all issues to be put to vote. As regards candidates,
look at anyone and you'll see something wrong; hence such comments.
[Correspondent] If People's Choice is going to vote along with you, tell us
why they oppose proportional elections?
[Tyhypko] I think proportional elections pose an extremely tough problem for
first-past-the-post parliamentarians. It is a historical fact that 262 votes
have been cast in support. Now let's think, do we really need political
reform or we don't? Do we need a powerful president or not? Therefore I
think the situation will change and many people's deputies will revisit
their views on political reform.
[Correspondent] Political reform would be invalid without reform in local
government. What do you think about abolishing presidential representatives
and authorize elected councils to form executive bodies?
[Tyhypko] We should create a great deal of centres to come up with
initiatives. We are now cultivating passive-minded regional administration.
Nations consisting of powerful states, lands or cantons would surely gain
from that move. [Regional state] administrations may retain some supervisory
functions. We need a lot of reforms. So we should just do them.
PRESIDENTIAL POLLS
[Correspondent] There is a nasty lady, Madeleine Albright, who said that if
elections are held in an undemocratic manner in Ukraine, its leadership
should know that their bank accounts abroad will be blocked. How could you
comment on this? Are sanctions possible from international organizations of
certain states?
[Tyhypko] Statements to this effect will be heard from the European Union,
the USA and, a little later, from Russia. Yet I think it's important for us
to remember one thing: medium and long-term economic development is
impossible without democracy. We ourselves should be interested in getting
it done democratically. Administrative influence will not work. All activity
should be absolutely public and free of any pressure.
[Correspondent] What is your vision of your own place in the presidential
race and how true are the rumours that you'll stand for president under no
circumstances?
[Tyhypko] Never say never. I cannot swear on the Bible that I will under no
circumstances stand for president. Why? Because I am a party leader and if
political reform fails, it is highly likely that several candidates will
stand alone. Although I must emphasize that this is a very iffy possibility.
The presidential position is to arbiter without interfering in political
life. As for us, we are a political party, we want power and we have less
interest in this kind of position. We want to maximize our representation in
parliament. We need to think about government formation, local authorities
and many more. So it all depends on how political reform gets on.
VAT
[Correspondent]What is your assessment of the State Treasury's efficiency?
Did you have reservations as regards the introduction of special [bank]
accounts for VAT?
[Tyhypko] As regards the State Treasury, I think it's wrong to transfer all
money to a single account. We've drawn money from bank accounts, money that
was working for the economy.
On the other hand, we've made the situation pretty bad and regulated at a
macrolevel; because there is, let's say, 5bn [dollars] on bank accounts and
6bn [dollars] at the State Treasury, the money being kept at the National
Bank. However, the government can push it to market anytime, so it's all too
difficult to keep prices under control. I think it matters that the treasury
should control the holding of tenders rather than money itself.
There's another position that I cannot accept. Local authorities in small
towns should cooperate with banks more closely. I don't understand why they
should hand out land for the building of filling stations; why local
authorities cannot build those stations on their own and lease them out on
certain conditions? Why local authorities cannot take a serious credit from
a bank to build 20 or 100 parking lots at once and earn money on them?
As regards VAT accounts, we've had reservations and doubts until recently.
VAT is losing its status as the main tax. This is wrong because there are a
great many machinations going on. Where's the way out? If you've made a law
and see that it doesn't work, you should promptly polish it. No law can be
polished once and for all. VAT works all over the European Union but not in
Ukraine. I think we've lost a lot of money by changing VAT drastically. An
account of a fly-by-night firm cannot work at a commercial bank until it
gets a mark from the police that would permit it to have a seal, until it
brings that seal to the commercial bank and until a tax administration has
passed an approval. I don't understand why we can't put things to rights
there.
STABILITY OF HRYVNYA
[Correspondent] It has transpired that currency exchange points are offering
the hryvnya in Russia. To what extent is the hryvnya getting international,
how much is it influenced by changes that the dollar, the euro and others
are undergoing on the international market. What changes may happen to the
hryvnya in view of the political situation?
[Tyhypko] I think the situation surrounding the dollar and euro is working
for the hryvnya today. The hryvnya has only grounds to strengthen today. If
we speak and do a lot about it, we'll have a rapid response, it is already
visible. Supply has been 190m in excess of demand lately. It shows that
people are ridding themselves of foreign currency and switching to the
hryvnya. We have every reason to expect a stable hryvnya in the near future.
We are not speaking about changing the National Bank's policy to date. We'll
continue to remain a very serious player.
[Correspondent] Is it realistic to expect commercial banks to form their
statutory capital in hryvnyas, or is this just daydreaming?
[Tyhypko] We'll decide on it. Everyone should get used to the idea that the
hryvhnya is stable.
[Correspondent] Are the National Bank's requirements most exacting with
respect to adequacy of capital?
[Tyhypko] It is 10 per cent. All banks have met it. Adequacy of capital
stands for the assets-to-capital ratio: the higher this ratio, the more
reliable the bank is. In the European Union, it is 8 per cent but Ukraine
features much higher risks. The Baltic states have it at 10 per cent, Russia
has 10 per cent, Belarus 12 per cent and so on.
In order to make our banking system reliable, we need to increase this
indicator. This is why the National Bank's position will be irreversible. I
take counsel with commercial banks but our stand will be strong.
As regards capitalization, our board is taking a number of decisions to make
it easier for banks to increase their statutory capital. I think I'll be
able to persuade the board that it should be counted in hryvnyas. It makes
no sense to count in euros as it's not handy for Ukrainians. We should care
about the hryvnya's stability.
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