PRLog (Press Release) –
Feb 04, 2008 – - Vasily Mikhailovich, what can you say about October inflation rates? Don’t you think that the Ukrainian authorities have absolutely lost control over prices?
- Firstly, I would like emphasize the fact that I don’t consider current inflation something terrifying. To a greater extent it is caused by objective factors as well as extremely emotional statements on this topic and too much fuss about this problem. It seems to me that the sooner politicians give up their wish to get extra points exploiting and exacerbating the problem of price rise, the sooner the inflation fears which are often exaggerated will disappear and the price dynamics will start slowing down.
Despite increased values, inflation, nevertheless, remains rather well predictable and controlled, since the annual growth rates, to my mind, have already reached their peak. And, what is most important, it is accompanied by a steady dynamics of the economic development. This is the fact that essentially differs it from its much more unpleasant analogue of 2005, when the increase in inflation rates was accompanied by a sharp slowdown in GDP growth.
- But you will not deny the situation, in which price rise is measured by two-digit numbers the fourth year running, can’t be considered natural?
- Of course, I will not call this situation normal, but I would like to say that all those figures are quite clear for a dynamically developing economy, whose structure is still characterized by a number of imbalances. So I don’t see any special problems in this case.
Certainly, it is necessary to draw conclusions from the situation, having previously analyzed the underlying inflation factors. But extreme dramatizing of the current situation is also wrong.
- A lot of reasons for price rise have been mentioned lately and most of them just brought the discussion out of the sense of the events. And which main factors do you see?
- I would not like to enlarge on political factors of price rise which has already been analyzed a number of times. However, it is evident that the political crisis and another election race of social resolutions, in which our political force had to be involved, took their toll on current price processes.
I would also like to draw your attention to the fact that since the time eliminating most customs barriers and decrease of fees in 2005 we have actually been working under WTO terms and conditions in terms of the market openness. It means that we have practically completely opened our economy to the external influence, but at the same time haven‘t prepared it for such conditions. Ukrainian consumer market depends as much on the import that saturates it as the dynamics of the producers’ prices – that is world market. Therefore it is foolish to deny the fact that external world processes independent of us make a considerable influence on our domestic price situation.
Unfortunately, banking system has contributed to the escalation of consumer inflation, since it has increased the amount of extended consumer credits several times for the last years. As a result, buying power of population has increased not only at the expense of increase of the incomes, but also a considerable inflow of credit funds, which has become comparable with incomes.
Growth of consumer crediting, which we lost control over, was, undoubtedly, one of key inflation factors. Since additional credit resources will be used for increase of consumer demand instead of manufacturing sector, that is supply stimulation.
- That is everybody agrees with the opinion that there is crediting bank in the country now?
- And how else can this be called? Third year running banking system having considerably simplified extending loans to individuals increases their amount more than at double rates.
Can we say that our producers now suffer from the excess of cheap resources? On the contrary, there has been a bias to the demand stimulation in banking crediting and this situation has to be corrected in some way.
I don’t want to say that the banks don’t have to credit consumers; on the contrary, it is one of their main functions. And it is unacceptable to just limit consumer crediting. In the same way, it is impossible to neutralize price pressure by monetary methods under current circumstances limiting the availability of resources for entrepreneurs. In contrast, it is extremely important to create conditions to compensate a growing buying power of population by adequate increase in supply.
It will require the government, the NBU, the Financial Services Markets Regulation State Commission joint development and carrying out complex activities aimed at stimulating investments in production.
- The National Bank attempts to implement these or those restricting regulating measures from time to time, but the bankers have rather well-proven lobbyist means of resisting the regulator’s initiatives which they find inappropriate. The dialog between market entities and the NBU is a very useful thing. The National bank, though with many reservations, but hears banking system. But doesn’t it abuse its responsiveness and flexibility, since other approaches are rarely offered in exchange of the NBU’s really not always successful measures?
- It seems that the banks should not oppose much to such initiatives. Since in the current situation of an evident overheating some constraints will somehow slow down the growth of banking business, in the long run the whole banking system will benefit from the situation.
As trying to attract clients by means of credit availability, a series of financial institutions have totally refused to make a proper evaluation of their creditworthiness. The risks are just shifted to bona fide borrowers and are compensate by incredible loan rates – up to one hundred and more percent interest per annum.
I would like to draw your attention to the fact that even in the Soviet Union the percentage of non-repayment on installment credits reached 20%. What can we say now, if some banks just disdain appropriate credit procedures? Even numerous eminent foreign owners making retail banking the priority for the development of their subsidiaries do not rush to introduce European standards of borrowers’ merit rating.
It even reaches the point of absurdity: credit outlets started appearing in the markets and food supermarkets. And not only banks, over which there is a rather scrupulous supervision of the regulator with all reservations, are involved in this process, but also practically abandoned credit unions, which are 700, if I am not mistaken. It is a rather archaic type of consumer crediting has somehow actively developed lately.
It seems to me that the growth of consumer crediting by any means can’t be let ride. It is necessary to use a thorough approach to borrowers’ creditworthiness evaluation, unify standards of commercial banks and credit unions liquidity to exclude groundless imbalances and preferences
