Igor Mazepa: Half a billion dollars – the cost of martial law for the economy of Ukraine28 November 2018
Ukraine’s emergency situation prompted UEFA to decide yesterday to change the venue of the match between Poltava Vorskla and Arsenal F.C. from Poltava to Kyiv. The reason was to ensure security amid the introduction of martial law in 10 regions of Ukraine. And that’s despite the Poltava region not even being on the list. But is it not the expected reaction from an international organization in the given situation?
Any foreigner will react just as nervously, and not entirely logically, reading the most recent news headlines from Ukraine. Especially foreign investors. The typical cosmopolitan investor abroad, to a large extent, will never figure out what’s truly happening in the country. It’s enough for him to read these headlines, which will give reason enough to turn to thousands of other investment ideas in scores of other countries, where there is no martial law. The reaction of those who have already skimmed something off their Ukrainian assets can also be compared to UEFA’s reaction: “selling” before even understanding the essence of what’s happening in the country.
Withdrawing from investments or postponing them won’t be without consequences for our economy: at minimum, the cost of international borrowing for Ukraine has already grown. And our government will still need foreign debt next year.
Imposing martial law is something absolutely new, and obviously doesn’t bode well for any resident of our country, who have become accustomed to a lot of things in recent years. In a situation of such indecision, Ukrainian consumers and businessmen sharply reconsider their priorities, giving preference to cash instead of bank deposits, basic staples instead of goods of long-term use the transfer of money to safe havens instead of investment in new capacities and the U.S. dollar over the hryvnia. This all leads to money laundered from the banking system, where they would have multiplied and created additional value for the economy. In its turn, this provokes a decline in business activity, which will ultimately be negatively reflected in the indicators of our economic growth, which didn’t shine with optimism even without all this
I estimate the direct and indirect losses for these attempts to introduce martial law at half a billion dollars. And that’s not a small sum for a country whose economy earns little more than USD 100 bln annually. These are also losses for our budget, as well as for our country’s defense capability.
Of course, there is a slim hope that these losses won’t be irreversible, and that our political elite will nonetheless be able to turn this negative into a positive. At minimum, that would involve decisively resolving Russia’s blockade of ships in the Azov Sea, as well as securing the supply of new resources to bolsert Ukraine’s defense capability. At maximum, that would involve blocking or seriously delaying the introduction of Russian pipelines, which are obviously aimed at reducing our economic position.
Commented Igor Mazepa the introduction of martial law in 10 regions of Ukraine.
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