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Consequences of the political crisis Results for 2004 Forecast for 2005–2006

Consequences of the political crisis Results for 2004 Forecast for 2005–2006. Press conference International Centre for Policy Studies 20 December 2004. About the International Centre for Policy Studies Forecast for political developments in Ukraine

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Consequences of the political crisis Results for 2004 Forecast for 2005–2006

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  1. Consequences of the political crisisResults for2004 Forecast for 2005–2006 Press conference International Centre for Policy Studies 20 December 2004

  2. About the International Centre for Policy Studies Forecast for political developments in Ukraine Preliminary economic results in Ukraine for 2004 Impact of the political crisis on economic development. Forecast for 2005–2006 What kind of regional policy is optimal for Ukraine? Plan of the presentation Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  3. About the International Centre for Policy Studies

  4. International Centre for Policy Studies • Is an independent research organization, founded by the Open Society Institute in 1994 • The Centre’s goal is to introduce publicpolicy-making concepts and procedures in Ukraine • Works in tandem with various interest groups: government, business, NGOs, media • Web-site is atwww.icps.kiev.ua Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  5. The Centre has been preparing regular economic forecasts for Ukraine since September 1997 Quarterly updates of these forecasts make it possible to take into account new data and changing trends Our analysts’ conclusions are not slanted Since 2002, the forecast period has been extended to three years (now through 2006) Since 2003, the Centre has been publishing a monthly analysis of government policy, political competition and external relations under the “Political Commentary” project What makes ICPS forecasts better Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  6. Forecast for political developments in Ukraine Daria HLUSHCHENKO

  7. The votes on 31 October and 21 November failed to clearly determine a new president As predicted, the election campaign was the dirtiest the country had ever witnessed Mass protests against vote-rigging were supported primarily by young people and Ukrainian SMEs The democratic, middle-class revolution Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  8. Viktor Yushchenko will win the 26 December vote A repeat rigged vote in favor of Viktor Yanukovych is not very likely: the system for fixing the vote has been broken Eastern and southern oblasts may not recognize Mr. Yushchenko as Head of the State Forecast for the outcomeof the 2004 presidential election Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  9. The president will continue to be the key political figure, provided that he effectively uses his powers, despite limitations imposed by Constitutional reform The Verkhovna Rada will quickly form a new majority that will support President Yushchenko The influence and effectiveness of political parties will grow Forecast for political reform Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  10. Democratic and market reforms should pick up considerably in mid-2005 Reforms to the tax, residential services and social security systems should remain on track Corruption and government intervention in economic processes will be reduced, not the least because of the growing role of independent media Forecast for reforms Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  11. The president, the Verkhovna Rada and the Government will make efforts to develop relations with both the EU and Russia Moscow’s determination to be the only full-fledged FSU negotiator with the EU, NATO and the US will be undermined Ukraine could turn into the epicenter of western influence among CIS countries Forecast for foreign policy Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  12. In the pursuit of mutual benefit, relations with Russia will become more pragmatic Emotional positions such as “the friendship of brotherly peoples” will be dropped from the political vocabulary Russia will be unable to manipulate Ukraine’s new president The CEA as Russia sees it may never happen The transformation of relationswith Russia Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  13. Recent events in Ukraine have proved a watershed in the way that the country is perceived in Europe A democratic presidential election and the events preceding it could bring the prospect of Ukraine’s accession to the EU closer Relations with Brussels should become more active, while foreign policy will be clearly oriented towards accession Prospects for European integration Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  14. Ukraine will work to establish better relations with the US Satisfying US demands regarding a democratic election should help resolve current problems in bilateral relations Forecast for Ukraine-US relations Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  15. Preliminary economic resultsfor Ukraine in 2004 Andriy BLINOV

  16. The political crisis means that the economy will develop according to a risk scenario that the basic ICPS forecast did not predict The Centre predicted that a president would be determined in the run-off and that the loser would acknowledge this victory The Centre predicted smaller-scale vote-rigging The Centre predicted lower volumes of social spending on the part of the Government The risk to economic forecastsproved correct Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  17. The political crisis did not turn into an economic one and the economy did not show any sudden deterioration The economic impact of a radical political struggle, threats of separatism, and ineffective work on the part of government bodies will be no more than 0.5% of annual GDP: a lending ceiling will be instituted productivity will slip foreign trade contracts will become more expensive and some will be broken Budget revenues will shrink Economic trends at year’s end Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  18. External conditions and economic growthannual % change Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  19. Real GDP quarterly change, % Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  20. Economic growthwill slow to 12% by the end of 2004 for three reasons: Cyclic: five years of rapid economic growth under condition where there was insufficient investment and inflation accelerated to 12% External: a stop in the brisk growth of prices on world commodity markets Political: the short-sighted election policy of the Yanukovych Government, lower investment growth, huge capital flight Reasons for the economic slowdown Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  21. Investment growth not excessive Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  22. Ukrainian consumers lose confidence Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  23. Insufficient development of domestic markets due to excessively porous economy (export/GDP ratio > 60%) Concentration of metals exports (> 30%) Obstacles to business development: “government-business” relations, dishonest competition, high political risk Low volumes of foreign investment Weak role of SMEs (10% of GDP) Few opportunities for the financial sector to finance business or the general population, narrow range of services Stable growth remains impossible Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  24. Impact of the political crisis on economic development. Forecast for 2005–2006 Andriy BLINOV

  25. All government bodies will resume working and mass protests will stop The priorities of the new Government will be stemming inflation, lowering the costs of foreign trade operations, stabilizing the banking sector, avoiding a payment default, and adopting a fiscally sound Budget GDP growth will continue to slow, going down to 7%, due to trends that emerged in 2004 and low investment at year’s end A moderate Budget deficit (2.5% of GDP) In H1’05, inflation is likely to hit 15–16% year-on-year and settle at 11% by year-end Forecast for 2005 Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  26. After the election, the quality of government policy should improve, while economic reforms will pick up Investors will show stronger interest in Ukraine The new Government will maintain social commitments made by the previous Government, but it will not be able to increase social support Ukraine should accede to the WTO in late 2005 – early 2006 Assumptions regarding economic policy Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  27. The presidential election will be delayed and state administration paralyzed The political crisis will turn into an economic one and a recession will emerge High inflationary expectations will wreck the financial system and deepen the Budget crisis Inflation will gallop ahead (self-sustained), causing a payment default and banking crisis Growing risk of economic disintegration Risks to this forecast Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  28. Slowdown in economic growthGDP, real % change Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  29. Investment will grow faster than GDPreal annual % change Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  30. Foreign investment will continue to growannual FDI net influx, USD millions Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  31. Slowdown in different economic sectors gross value-added, real % change Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  32. An improving macro-financial situation • A gradual reduction in the Budget deficit through: • revision of blanket privileges • stabilized expenditures (29% of GDP) • a gradual retreat from micro-managing • no emerging new debts due to availability of financial resources (privatization + international borrowings) • Slower inflation • Stable USD/UAH exchange rate and slower growth of EUR/UAH exchange rate Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  33. A shrinking Budget deficitConsolidated Budget revenues and expenditures, % GDP Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  34. A stable nominal exchange rateUAH/forex Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  35. Continuing acceleration of inflation in H1’05 Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  36. What kind of regional policyis optimal for Ukraine? Oksana REMIGA

  37. Interregional development gaps are growing over time With the exception of the capital, no region is in the lead according to basic indicators Symptoms of regional policy problems Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  38. Relative ratings of regions comparedto national average Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  39. Budget contributions not proportional to regional economic development UAH per capita Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  40. High economic developmentnot equal to high quality of life Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  41. An alternative to grouping regions by location Reveals problems and development prospects specific to a group of regions Confirms systemic problems in regional policy Cluster analysis of regional development Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  42. Groups of oblastswith common development features • The City of Kyiv • Dnipropetrovsk, Luhansk, Zaporizhzhia, and Donetsk • Kherson, Kharkiv and Mykolayiv • Crimea (including Sevastopol), L’viv, Odesa, and Zakarpattia • Sumy, Poltava and Ivano-Frankivsk • Volyn, Chernivtsi, Ternopil, Rivne, Khmelnytsk, Kyiv, Vinnytsia, Zhytomyr, Kirovohrad, Cherkasy, and Chernihiv Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  43. Lack of clear goals Excessive centralization Ill-defined role of national and regional governments Ineffective means for supporting regions with development problems Systemic problems with regional policy Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  44. Overall national well-being versus Interregional equality Regional policy goals Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  45. Special investment regimes—free economic zones Inter-budgetary equalization mechanism Sectoral programs allocating financial resources to support depressed areas Centralized investment in socio-economic regional development Support for socio-economic development in the mountain regions Key regional policy tools Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  46. Principles of reform • Decentralization, with clearly defined areas of responsibility for national and local governments • Active engagement of local governments in developing and implementing specific policies • Clear criteria for identifying troubled areas • Reasonable time limits for allocating government support Міжнародний центр перспективних досліджень International Centre for Policy Studies Tel. (380-44) 236-4477 Web: www.icps.kiev.ua

  47. Thank you for your attention!

  48. Consequences of thepolitical crisisResults for2004 Forecast for 2005–2006 Press conferenceInternational Centre for Policy Studies 20 December 2004

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