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2 November, 2011  ▪  Bohdan Tsioupine

Verdict for Investors

The Ukrainian government commands no admiration in the EBRD

The office of EBRD Chief Economist Erik Berglöf looks more like that of a school principle, with books and folders neatly arranged on the shelves and piles of paper rising on the writing table. “I am not a banker,” he hurries to emphasize when we come to the topic of banks’ responsibility for the global financial crisis. “I am working in a bank of development, not a commercial bank.”

Berglöf’s office probably requires adhering to international political etiquette, but his Scandinavian fidelity to principles forces him to use polish only sparingly as he answers questions about Ukrainian affairs.

The EBRD’s forecast of Ukraine’s growth for 2011 (4.5%) “looks good but … is really lower than the potential. It reflects problems with the business climate in Ukraine, continued political uncertainty and a number of difficulties in the financial sector,” Berglöf says. Ukraine’s economy is coming out a very deep hole, so over 4% is not enough to really enhance people’s welfare.

In a similarly calm, professorial manner Berglöf offers an overall assessment of the Mykola Azarov government: “External processes are taking place that are conducive to growth. But there is nothing, or almost nothing, in terms of improving the economic policy or business climate in Ukraine. This is rather the impact of the overall economic recovery and the fact that all indices were very low during the crisis.”

The EBRD fears that external factors will work for the worse, rather than for the better, in 2011 and 2012. The crisis of the eurozone, if not dealt with efficiently by the EU’s Economic and Monetary Union, will have repercussions for Ukraine as well, but not as much as for, say, Slovakia or Hungary. However, EBRD economists believe that the Russian market, the other important big market for Ukraine, may also keep Ukraine’s indices down if world prices for raw materials, on which Russia’s economy totally depends, drop.


Will Ukraine now have to choose between the West and the East? “These are existential realities which Ukrainians have to figure out themselves,” says Berglöf. Regarding economic cooperation, the EBRD chief economist recommends just looking for profits: “You need to trade with everyone.” But then he adds: “There is a large benefit in a rapprochement with Russia, but Ukraine can secure truly great, long-term benefits from integration with the European Union.”

Another burning Ukrainian issue, which has been tied into a tight knot by the Ukrainian government, can also be answered, it turns out, in a straightforward way from an accountant’s point of view, so to speak. Berglöf, a special adviser to the EBRD president, sums up the economic consequences of the show trial against Yulia Tymoshenko: “Clearly, imprisoning an ex-prime minister cannot be a positive sign in any country. This is a signal to investors both inside and outside that government policy is faulty. I believe it is a long-term problem. Recent developments will not necessarily reflect on the economy right away. But it is turning into a feature of political uncertainty which, no doubt, influences investors eager to invest in Ukraine. This is bad. Unfortunately, it can be a part of an even bigger problem.”

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