Transcript Hypothesis 1

Russian and Ukrainian Transition
in Comparative Perspective
The Context: Similarities and
Differences
Similarities
• Cultural, historical,
institutional
• Initial conditions of
transition
• Trends in economic
policy and reform
Differences
• Oil and gas reserves
• Geographic
advantages for
Ukraine
• Tradition of
government: Weaker
in Ukraine
Similarities in macroeconomic
performance
• Early 90s: sharp industrial decline, high inflation,
instability.
• Limited progress in stabilization interrupted by
1998 financial crisis.
• Demonetized “virtual economy” in the latter
1990s.
• Rapid growth, monetization, and other positive
trends since 2000 (growth slowing in 2002 and
accelerating in 2003).
GDP growth: 1995=100
140
130
Russia
120
Ukraine
110
100
90
80
1995
1996
1997
1998
1999
2000
2001
2002
2003
Similarities in economic policy
and reform
• Early 1990s: Quasi-fiscal subsidies through the
banking sector and state budget.
• Mid-1990s: Quasi-fiscal subsidies shifted to
energy and state budget (deficits).
• Majority of state assets privatized by latter 1990s
• Major campaigns to eliminate budget deficits and
money surrogates in 2000, followed by other
significant measures to improve budgetary and tax
systems.
• Recent monetary policy based on implicit
exchange rate targeting to the dollar.
Similarities in institutional
development
• Increasing concentration of activity in financial-industrial
groups
• Entrenched insider control during most of the 1990s,
followed by the rapid emergence and growth of a market
for corporate control and increasing outside ownership
• High managerial turnover since late 1990s
• Demonetization in the late 1990s followed by very rapid
monetization
• Rapid growth in commercial banking and credit
• Acceleration in restructuring
• Growing competition (including competition between
FIGs)
The ownership structure of Ukrainian firms: 1999 versus 2002
Average shareholding
The state
Insiders (workers + managers)
of which workers
of which managers
Outsiders (Ukrainian and foreign)
of which Ukrainian companies
of which Ukrainian individuals
of which foreigners
Neither insiders, outsiders, nor state
1999
8.6
57.6
40.1
17.5
33.6
21
11.5
1.14
-
2002
8.6
49.8
30.7
19.1
41.1
25.7
13.8
1.6
-
Source IER Survey data from 151 enterprises in 2002 (See Akimova (2004)).
% with greater than 50%
1999 2002
6
6
53.0 47.7
27.8 19.9
6 14.6
33.2 43.8
21.2 27.8
8.6 11.9
0.7
1.4
7.9
2.5
The ownership structure of Russian firms: 1999 versus 2002
Average shareholding
In corporations with
this type of shareholder
The state
Insiders (workers + managers)
Outsiders (Ukrainian and foreign)
of which non-fin commerical org.
of which individuals
memo: foreign companies and ind.
1999
11.1
43.2
45.7
21.6
18
2002
9.6
35
55.4
30.0
21.8
2.8
3.4
1999
40.9
51.1
61.8
44.3
31.5
2002
43.2
45.3
69.4
53.6
34.6
38.2 32.7
Goskmostat Data form survey of over 290 corporations (From Structrual Changes in Russian Industry ).
40
Figure 2: Monetization:
1999, 2002, and 2003
(%M2/GDP)
35
1999
30
2002
25
2003
20
15
10
5
0
Ukraine
Russia
Share of Barter in Industrial Sales
60
50
Russia
40
Ukraine
30
20
10
0
1997
1998
1999
2000
2001
2002
2003
Share of cash sales in energy:
Russia
100
80
gas
60
electricity
40
20
0
1999
2002
Share of cash sales in energy:
Ukraine
100
80
gas
60
electricity
40
20
0
1999
2002
Fig ure 2.9: Ukrain e: Sho rt- and Lon g-Term (over 1 yea r)
Comm erci al Credi t
(as a sha re of GDP)
25.0
4.8
20.0
2.8
15.0
10.0
5.0
1.1
1.0
1.3
0.8
3.4
3.6
4.2
1.6
1.4
2.6
4.3
5.2
4.5
8.5
8.9
2002
2003
4.4
5.2
6.4
2000
2001
0.0
1999
short-term HUV
short-term foreign
long-term HUV
long ter m foreign
F igure 2.1 0: Ru ssia : S hort- a nd L ong-T e rm (o ve r 1 ye a r)
Com m e rc ia l C re dit
( a s a sha re o f G DP )
2 5.0
2 0.0
2.9
2.6
1.8
1.7
1 5.0
1 0.0
1.8
1.3
2.0
1.3
3.7
2.1
4.3
2.6
4.0
3.3
4.3
5.0
6.7
4.8
9.1
9.7
11.0
20 01
20 02
2 003
0.0
1 999
2 000
short term ruble
s hort term f oreign
long-term ruble
long-ter m foreign
What is the source of such strong
similarities in Russian and Ukrainian
Economic Performance?
• Hypothesis 1: Ukraine remains so highly integrated with
Russia that its economic performance simply mirrors that
of its larger neighbor.
• Hypothesis 2: External factors for both countries have
been similar: growth since 2000 explained by depreciated
currency, excess capacity, and high commodity prices for
exports
• Hypothesis 3: Similar initial conditions, policies, and
reforms. Along with favorable external factors, recent
growth reflects policy changes that improved economic
incentives and facilitated institutional development in both
countries
Evidence for hypothesis 1 is
rather weak
• Trade volume between Ukraine and Russia
recovered in 2000, but did not grow very fast from
2001-2003.
• Capital inflows to Ukraine have been quite small.
• Russian subsidies to Ukraine have diminished
significantly.
• Remittances of Ukrainian workers from Russia
have been significant, but still of limited impact.
Trade (goods) of Ukraine with Russia
(US$ millions)
7000
6000
Exports
5000
Imports
4000
3000
2000
1000
0
1999
2000
2001
2002
50.0
Share of Ukrainian foreign trade
(goods) with Russia
45.0
exports
40.0
Imports
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
1999
2000
2001
2002
Net current transfers (remittances)
2500
2000
Net current
transfers
1500
1000
500
0
1999
2000
2001
2002
Evidence for hypothesis 2 is
stronger
• Recent growth in both countries in export and
import-substituting industries.
• Slowdown in growth associated with rising costs
(real appreciation) and rising marginal costs
(diminishing excess capacity).
• Acceleration since 2003 linked to much higher
commodity prices.
• Yet growth in Ukraine from 2001-2003 was not
export-led.
Growth in Ukrainian Industry
220
200
Industrial Goods exports (quantity index)
Industrial output index
180
food industry ouput index
machine-building output index
160
140
120
100
2003
2002
2001
2000
1999
1998
1997
1996
80
The evidence for Hypothesis 3 is
also strong
Surveys indicate a fundamental change in
the incentives and orientation of firms and
managers.
a)
b)
c)
d)
e)
f)
From macro-stabilization.
From changes in the allocation of explicit and implicit
state subsidies.
From the imposition of financial discipline.
From improvements in the tax system.
Less favoritism of particular business groups.
From an overall policy commitment to the development
of markets, re-enforced by institutional changes.
Challenges for the sustainability
of growth
• Measures to combat the insider economy and
encourage financial-industrial groups to “come
clean.”
• Problems in government administration and
interbudgetary relations.
• Competitiveness and restructuring
• Vulnerability to external shocks (Diversification)
• Holding the course on basic reform strategy