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SESSION 2:
The role of the financial sector in attracting FDI
Inna Golodniuk
CASE Ukraine
CASE Ukraine
www.case-ukraine.kiev.ua
Stock market turnover, % of GDP
30,0%
Banking assets, % of GDP
100,0%
80,0%
20,0%
60,0%
40,0%
10,0%
20,0%
0,0%
0,0%
Ukraine
2000
2004
Poland
Czech
Republic
Hungary
2000 2004
Ukraine Poland
Czech Hungary
Republic
www.case-ukraine.kiev.ua
Rudimentary development of
the domestic capital markets
 Hinders implementation of core policies
and reforms
 Monetary policy
 Pension reform
 Monetary policy – lack of instrument for
OMO, inflation targeting challenged
 Pension reform – restriction on investment
possibilities for PPFs and insurers
www.case-ukraine.kiev.ua
Capital Market Development
Liquidity
Competitiveness
 Need for proactive and consistent government
 as market participant
 as the Regulator
www.case-ukraine.kiev.ua
Market Liquidity
 Supplying new instruments to the
organized market
 Privatization through IPOs for most
attractive enterprises
 Channeling mortgaged backed securities
to the market
 Free float of stocks of state-owned
enterprises (with state ownership)
 Government bonds
www.case-ukraine.kiev.ua
Liquidity
 Abolish limitations regarding exclusive
listing at “stock exchanges”
 Obsolete regulation of derivatives
 Administrative interventions in the
commodity markets
www.case-ukraine.kiev.ua
Competitiveness
 Ukrainian securities are listed on western
stock exchanges
 Foreign investors cannot or unwilling to
penetrate
 Joint Stock Law
 Overregulated Capital Account
www.case-ukraine.kiev.ua
Capital Account Liberalization
 Restrictions: numerous, legislative acts of
different level, lack of systemic approach
 Securities trading (stocks, bonds,
instruments of investment funds)
 Money market operations
 Operations with derivatives
 Foreign investments, real estate
transactions
 Bank credits, guarantees, account opening
 Allocation of investment fund asset
www.case-ukraine.kiev.ua
Capital Account Liberalization
 Double asymmetry:
 Outflows are more restricted than inflows
 Residents more than non-residents
 Ukraine, Belarus and Moldova – CEE
remaining capital account restriction
areas
 Russia and Kazakhstan – liberalization
by 2007
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Capital Account Liberalization
 Need to coordinate with transition to
inflation targeting
 Announce clear liberalization sequence
and implement it, 2-3 years
 Stock market operations, FDIs,
investment in real estate – early stage
 Money market operations – final stage
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Thank you
CASE Ukraine
www.case-ukraine.kiev.ua
10 Starokyivska Str., Suite 15
04116, Kyiv, Ukraine
T/f: (38-044) 483-2614