Workshop for Business Mass Media Representatives

At SigmaBleyzer’s Office, December 10, 2008

Diana SMAKHTINA

 Director, Corporate Governance, Sigmableyzer.

  Subject:  Stock Market in Need of Crisis Resolution Strategy.   

In his article published in Zerkalo Nedeli, issue 42, Professor Alexander Sharov is right on target, saying that “…in fact, we do not have a defense barrier in the form of a stock market,” and further, “Such a remedy  (defense against the crisis consequences - Edit.) should be organized by government authorities, who would be well-advised now to start building a stock market…”.

 Ukraine’s stock market “suddenly” turned out to be “the weak link”, which was the first to herald the approaching crisis. Ukrainians were still animatedly and ironically discussing the ideas of economic revival (voiced by the President), the country’s isolation from global problems (expressed by the Prime-Minister), and what the opposition was hiding, when the stock market plummeted by almost 70%. And even though the underdevelopment of the stock market had been a popular issue broadly discussed by everyone wishing to do so, it turned out that, whether existent or not, whether well-developed or not, it was the first among other financial markets to respond and raise the alarm.

The issue of harmonious regulation of financial markets, currently taken up by the Group of Twenty, became a matter of prime concern in Ukraine. The spotlight, however, is on banking regulation, because this problem hit the pockets of the state, the corporate sector, and individuals. The stock market issue remained in the shadow. It turned out, however, that the stock market is not only one of the most important components in the financial market infrastructure, but also a highly sensitive indicator. We cannot deny this by reproaching that market with its speculative nature. It is the government’s task to hinder the predominance of speculative principles. That is what Professor Sharov talked about. That is what specialists and experts are talking about.

However, Ukraine’s problem with the stock market is much deeper. The substitute we currently have is not only a weak link. It will become a barrier by the time – hopefully, that time will not be too distant and too difficult –Ukraine begins emerging from the crisis.

Thus, we have answered the question “Who is to blame?” The next traditional question is “What to do?” In our opinion, we should begin from the start. Every regulation in complex financial and economic systems should start with the identification of behavior patterns in such systems.

The issue of sufficiency and quality of the regulatory framework has been discussed for long and in negative terms. Now more than ever this pressing matter requires answers to the questions: “What is bad?”, “To what extent is it critical?”, and the traditional one – “What should we do?”

In our opinion, the answer to the last question is evident. While the stock market is virtually “down”, we have finally received a unique opportunity to do what has not been done before.

A systemic analysis, a clear-cut concept, and identification of the regulatory architecture of Ukraine’s stock market – that is what we need to be doing even today.

Oleg USTENKO

Deputy Director of The Bleyzer Foundation

Subject of the report:  Current economic situation. What awaits us in 2009? How to use time effectively?

The state of things as they have been for the past several months indicates that the main challenge for both the Ukrainian government and the National Bank in 2009 will be to fight the crisis, while making efforts to avoid a considerable decline in the real sector of economy.

The financial and banking sector of the country can and should be preserved. Other conditions include:

• significant expansion of the autonomy and independence of NBU operations;
• enhancement of transparency in the work of the NBU, as a key precondition for improving its credibility on domestic and foreign markets;
• adoption of a law establishing clear, precise, and transparent recapitalization procedures for commercial banks;
• a professional regulatory policy, which would stimulate mergers and acquisitions in the banking sector;
• implementation of a flexible exchange rate policy, accompanied by a shift to the policy of inflation targeting.

The real economy sector in 2009 will plummet. Metallurgy, the chemical industry, construction, and the services sector will be hit hardest. The risks in those sectors have resulted from a continuous global commodity market downfall, a reduction in household income, and scarceness of bank credit. A significant real sector constriction should be prevented through comprehensive systemic reforms designed to improve the country’s investment climate.

Time should not be wasted. A package of reforms should include measures to:

• create an actually functioning stock market;
• ease the burden on the private business;
• ensure clear, transparent, and stable legislative framework, which will provide for equal “playing rules” for all market participants;
• implement a judicial reform;
• carry out a public administration reform;
• realize a pension reform; and
• efficiently fight corruption.