Ihor Mityukov
21-01-2010
Thank you. I am grateful to the organisers for the invitation to participate in this discussion. I begin in order of the list of issues that we have in today's program. Many now speak of a new financial architecture. We hear the same number of statements from experts, finance ministers, and some central bankers who express their opinion. My opinion is that to date no one has yet offered a meaningful and acceptable, in the medium term, framework of a new financial system. Will it be created? I think it will be, but most likely as a result of a complex and controversial struggle between market participants and regulators.
Those initiatives that are currently used by political leaders were originally designed for the emergency rescue of financial institutions. By the way, I have a great personal respect for and surprise at how readily huge amounts of taxpayers' money have been allocated to the various financial institutions around the world. We're talking about tens or even hundreds of billions of dollars of taxpayers’ funds that have been transferred primarily for the recapitalization of financial institutions. And the measure of financial control, if we talk about countries like the United States, Britain, France and other European countries, was considerably less than the degree of control that was exerted on the Ukrainian government for having recapitalised 3 banks.
It is interesting to note the relatively mild control, mainly reduced to regular reporting to regulators of the commercial banks that have received financial support. This control, first of all, resulted in a significant reduction in costs, particularly in U.S. banks in an unprecedented number of cases, which helped commercial banks to save tens of billions of dollars. Gradually, even this approach bothered the government, which does not set for itself the goal of managing companies. And we see today, one by one, commercial banks and investment banks are quickly returning the funds received from the government. It is interesting that taxpayers still get additional profit.
Recently, the United States’ President Obama gathered the bankers. It was 2 days ago. Before the meeting, Citibank returned the last tranche of state aid. The general conclusions, made by experts, are that Obama has lost, or is losing, a lever of influence that he could have on American financial institutions.
Is it good or bad? It depends on what policy he will pursue. I think most leaders of developed countries now pursue only the populist policy. Socialism as an idea begins to prevail, surprisingly, even in the United States. If we examine the latest reform of their health care system, we will see that this reform is clearly beyond the capabilities of the budget system of the United States. Nevertheless, under tremendous political pressure it was adopted.
And the last initiative, which investment bankers do not really like, is associated with increased taxation of bonuses for managers and top-managers of commercial and investment banks. In my opinion, the purpose of the initiative is to appease the public, to gain the liking of the electorate. I do not think it will significantly affect the budget revenues. Yes, you can talk about a few billion, but a few billion for the Ukrainian budget can be essential. For the British, at best, it would only help to solve the problems of one group of public servants, such asfire-fighters, or health protection system employees, or someone else. Overall, this cannot improve the situation, which today, in fact, becomes unpleasant for any reasonable economist.
We are talking about a GDP deficit of 12-13% deficit. And where do they talk about this deficit? Not in Russia, not in Ukraine, not in Bulgaria. We do not talk about the deficit in Greece, but the deficit in Britain, the United States and other countries that are trying to spend money in order to maintain economic growth.
I think the fight is with such a huge deficit, and methods of absorbing excessive state involvement in supporting economic growth. This struggle and the associated problems will really lead to some new regulators and mechanisms. We do not know anything new, except for sharp spending cuts, and far-lasting fields of influence of the general policy which complicates even more such tough measures to reduce costs.
Therefore, I think gradually we move from talking about greater state influence on the financial system to talks about how we can bring the government finances of most countries to those standards, which we all are accustomed to seeing from reading the Maastricht agreement. How this will be done is hard to say.
I say again – except for cost reduction, a single mechanism, which now lies on the surface, is the acceleration of economic growth. Much of this growth depends primarily on developing countries, which could lead to a greater degree of influence of these countries at various international forums and international initiatives.
We see today that the conference in Copenhagen is up in the air. Because of what? It is up in the air because of the very tough position taken by developing countries. They understand that they should get, can get support. They can, in a good way, blackmail with this. And developed countries? I think that this blackmail, this bargain, will last until the end of the week. It’s 50:50 whether they agree or not, because the resources are limited.
Will the dollar stop being the dominant currency? I think, no. I agree with this conclusion. Even if such a decision were made , more than one year would be needed to build a new system. Too many financial flows, too many tools, and too many assets are identified today in this currency. The economy of the United States, in my opinion, will revive and grow faster than others, precisely because it is very liberal and very rigid regarding market participants. The dollar will not have a worse perspective than it has now.
Regarding Europe, I think that it will be difficult for Europe to reduce budget deficits as sharply as America or other countries, including Ukraine, because they have more socialism there than we have here. I think that Europe’s macroeconomic problems still lie ahead. A new construction may actually be built somehow to mitigate these problems.
Will the International Monetary Fund have a new role? The role will remain the same, but I think countries like China, India, Russia, and Brazil deserve to have much greater impact on decisions that are made.
