Economy Minister Serhiy Teriokhin believes that the real budget deficit reaches 32 billion hryvnias. These are the true consequences of the "economic miracle" named after Kuchma-Yanukovych. And this means that the state this year will catastrophically lack money for any programs and payments, and that in order to fulfill state obligations, additional sources of budget revenue must be found immediately.
As can be concluded from the statements of government officials, these sources are being sought along traditional paths: eliminate all tax privileges, immediately introduce new taxes, reduce expenditures on the social sphere and culture, etc. Meanwhile, right under the authorities' noses there is money of terrifying volume that circulates in the shadow economy or simply lies there as dead weight.
This refers to funds that are outside banking circulation and accumulated in the hands of the population in cash form. A developed market economy is based on the fact that people keep money in banks. In Ukraine, everything is the opposite.
Why? First of all, because citizens who well remember the transformation of even Soviet savings into worthless paper, the catastrophic devaluation of funds deposited in Oshchadbank in 1992 at the call of President Leonid Kravchuk, and the notorious "trust scam" launched by Leonid Kuchma, still prefer to keep money "in a stocking" rather than in a bank. Because the latter guarantee, in case of any problems, the return of only 3,000 hryvnias, and even that only recently.
So what is to be done?
The philosophical education of the author of these lines constantly prompts him to be distrustful of the seemingly obvious actions of representatives of so-called "concrete sectors," and the study of 20th-century history has led to the accumulation of a thick load of knowledge about how governments in various countries emerged (or did not emerge) from various crisis situations.
So, if it may be permitted, I would like to cite some interesting facts and pose some questions regarding how to attract big money into the "circulatory system of the market economy" – the banking sphere – and ultimately obtain additional revenues for the budget.
Guarantees are the foundation of trust in banks
Let us turn to the experience of those countries where there were also problems with public trust in banks. For instance, in post-Francoist Spain, the law on guarantees of private deposits in banks was adopted in 1982. At that time, a single state Bank Deposit Guarantee Fund was also created.
Since then, every Spanish bank, as well as branches of all foreign banks operating on Spanish territory, is obliged to annually contribute to this fund 0.2% of the total amount of private deposits held by that bank. From the Fund's resources, private deposits are compensated in the event of bankruptcy of one or another bank; depositors can count on receiving an amount corresponding to 22 thousand dollars.
Those who keep larger sums usually place them in several banks; the banking system on the whole is developing stably, and on the other hand, no one becomes a monopolist with regard to private deposits.
In the USA, the Federal Corporation for Insurance of Private Individual Deposits has existed under various names for over 70 years. During the Great Depression, when hundreds of banks went bankrupt and millions of people lost their savings, President Franklin Delano Roosevelt initiated the adoption in June 1933 of the law on deposit insurance.
At that time, deposits were insured for an amount not exceeding 2.5 thousand dollars (which was good money then). At the beginning of the 21st century, the amount of an insured deposit equaled 100 thousand dollars.
The corporation's funds are currently formed only from bank contributions; the maximum payment is 27 cents out of every 100 dollars in private individuals' accounts; but the specific size of these contributions depends on the current state of affairs in the bank and on the rating given to it by regional and federal financial supervisory institutions.
Currently, private deposits in American banks exceed 4 trillion dollars. Of these, more than three trillion are deposits smaller than 100 thousand dollars. The rest of the money can be considered not fully insured savings, but it is placed in the most reliable banks, albeit at a lower interest rate.
At the same time, even during periods of economic growth, banks sometimes fail. But a private depositor can receive their money from such a bank already the next day. In fact, they don't even need to worry about the state of affairs in the bank: they will automatically receive a check by mail for the corresponding deposit amount.
In post-communist Poland, not only was inflation rampant; in 1993-1994, three powerful commercial banks went bankrupt. Tens of thousands of clients lost their savings. This accelerated work on the law on insurance of bank deposits, which came into force on January 1, 1995.
At that time, a Guarantee Fund was created, subordinate not to the government but directly to the Sejm. The Fund is formed without budget participation, exclusively from contributions by banks, which in 1995 amounted to 0.4% of circulating funds, and now have decreased to 0.15% of bank assets.
The Fund not only compensates deposits to private individuals; it helps with loans those banks whose financial condition has been shaken. The result: since 1994, not a single bank in Poland has gone bankrupt. And the amount of a deposit subject to guaranteed return is 20 thousand euros.
Let me remind you that in Ukraine not every bank insures its clients' deposits, and in addition, the return of slightly more than 500 dollars is guaranteed.
The Russians take a blunt approach
After last year a "banking panic" flared up in the neighboring state and the population began massively withdrawing their deposits (on the whole, 10% of savings were withdrawn from accounts), the government and parliament reacted to the situation quickly, decisively, though somewhat crudely. Legislative guarantees were immediately given to individuals who kept money in banks not included in the deposit insurance system.
These guarantees are provided by the state through the Central Bank: any deposit in any bank is compensated in an amount up to 100 thousand rubles (about 3 thousand dollars). Secondly, an insurance fund was created, which is to be managed by a corresponding state corporation, where significant sums will gradually accumulate and whose participants will become all banks in the country.
As funds accumulate in the fund, the size of deposits whose return is guaranteed in the event of a bank's bankruptcy will grow.
In other words, the Russian state has assumed concrete obligations toward private individuals in order to support the stability of the banking system. And although some Ukrainian mass media criticized this in this connection, saying that the state should not interfere too much in the banking sphere, this criticism seems to be based either on a misunderstanding or on ignorance of obvious facts.
The point is that in the 1930s in the USA, when the banking system was incapable of independently guaranteeing the population's deposits, these functions were also taken on by the state. The then Corporation for Guaranteeing Private Deposits received funds from the state treasury. This money was to be gradually returned – as insurance contributions from the banks themselves accumulated.
In reality, the process stretched over a couple of decades, and the state sometimes had to pull money out of its own pocket. But restoring trust in banks – figuratively speaking, the circulatory system of the market economy – was worth it.
Of course, to increase trust in the banking system, the Russians could also have applied the Israeli experience, where there are no guarantee funds whatsoever, and nevertheless, in the event of bankruptcies of private banks (and such bankruptcies have occurred only five times in the entire history of the state!), depositors received their money. At whose expense?
The point is that the Central Bank of Israel very carefully and meticulously monitors the activities of all commercial banks in the country, regardless of who is whose matchmaker or brother, and therefore does not allow banks to go bankrupt, and in the event of the latter, tracks where the money "escaped" to, finds ways to return it at least partially for settlement with depositors. So no one keeps shekels under the pillow, except perhaps recent emigrants from Ukraine and Russia, who do so out of habit.
But are the chekists from Putin's team capable of treating all banks equally zealously, even those on whose boards their colleagues sit?
A naive question. Obviously understanding this, Putin initiated the depersonalizing but quite effective principle of returning deposits for restoring trust in the banking sphere.
Is the Ukrainian government capable of learning?
And now – about our realities. The total amount of individual deposits in Ukraine as of 01.01.2005 was 41.2 billion hryvnias.
At the same time, over 42.3 billion hryvnias in cash is outside banks and, according to various data, in the hands (or stockings) of the population there is "only" from 15 to 20 billion dollars – while the gold and foreign currency reserves of the National Bank barely exceed 10 billion, and the net assets of commercial banks belonging to the top ten "giants" average 2 billion dollars.
The consequence of this is the high cost of loans (the government tells as its great achievement: peasants will be given loans for sowing "only" at 17% per annum, but in reality the banks have not yet finally agreed to this).
In a normal economy, the interest rates on preferential loans should be significantly lower – but without an increase in the mass of credit resources and without further stabilization of the banking system, this cannot be achieved; hence the constant problems with agriculture and strategic investment, and so on.
So, the question: should not the government and parliament do an elementary thing, namely attract in a very short time the population's funds into the banking system in order to satisfy the economy's and citizens' needs for cheaper credits?
Will this not, in turn, give a significant acceleration of economic growth rates, which will give an increase in tax revenues, through which budget obligations will be fulfilled?
And should this not be done now, when after the "Orange Revolution" President Yushchenko enjoys high trust among the overwhelming majority of Ukrainian citizens, and therefore his steps in the financial sphere will receive effective support?
In general, it seems the Ukrainian authorities should creatively use all the best from what has been discussed. So, I will propose in general terms a possible scenario of actions based on world experience.
The Fund for Guaranteeing Deposits of Individuals, created in 1999 without state participation, needs reorganization. The state should assume guarantees for the return of deposits – at least in the amounts as in Russia – which will promote the rapid growth of Ukrainian banks' funds.
After all, the money currently outside banks, especially dollar funds, is usually a few thousand set aside for a "rainy day" or for the purchase of some valuable item; it is not put in banks because there are no guarantees of the return of these thousands in the event of bankruptcies (everyone still well remembers the sagas of "Slavianskyi," "Ukraina," or "Gradobank"), and not everyone will run around distributing funds among a dozen banking institutions, and there aren't that many of these institutions in provincial cities.
Everything can change almost instantly. And not least as a result of citizens' personal trust in Yushchenko and Tymoshenko, who can act as initiators of the adoption of a law on state guarantees of private deposits.
Is there a threat in such a case that the bankruptcy of some powerful bank would destabilize the domestic financial system – since the state would have to find where to "pull" money from to return private individuals' savings? Hardly.
For instance, as of January 1 of this year, one of the largest in Ukraine – Bank "Aval" – had less than a billion dollars of individual funds in its accounts, more precisely, 5.021 million hryvnias. The First Ukrainian International Bank, which is part of the group of "large" banks, had 411 million hryvnias of individual funds; "Alfa-Bank" (Ukraine), which is a "medium" one – 52 million.
So, the National Bank is fully capable of "extinguishing" troubles in any of the listed banks; and in order not to have to do this too often, the Israeli experience of strict financial control over the banking sphere should be adopted.
"Today the population's deposits are growing rapidly, but the resources for lending to the economy are very small," believes the president of the Association of Ukrainian Banks, Oleksandr Suhoniako.
Meanwhile, it is precisely cheap and accessible credits that are the engine of any economic miracle and, moreover, the key to socio-economic stability and citizens' confidence in the future.
Will the new Ukrainian government create conditions for such a state of affairs?
And should one "head-on" storm business so that it fills the State Budget, when it is known that in most cases the most effective strategy both in war and in economics is the so-called "strategy of indirect actions"?
Serhiy Hrabovsky, deputy editor-in-chief of the journal "Suchasnist"