Arbuzov: The decision not to devalue the hryvnia was made consciously

Not agreeing to allow high volatility of the hryvnia exchange rate the government and the National Bank of Ukraine were convinced that the free-floating exchange rate regime would do much more harm than good to the country’s economy. They also based their decisions on zero tolerance to the imposed simplified economic model, which prevents the economy from evolving, only offering an opportunity to «reboot» it every time at much lower levels, says former Governor of the NBU and First Vice Premier of Ukraine Serhiy Arbuzov in his article for Forbes magazine.

«In 2011 — 2013 we tried breaking the vicious circle of „devaluation — external borrowing — crisis — devaluation“. We wanted to prove that such circle is not an objective economic reality, but some consistent pattern in existence of the Ukrainian economy... There were reasons for which the NBU restrained devaluation. And it was not an arbitrary decision contrary to the macroeconomic indicators, and even more so, it did not pursue the objective of „coaxing“ the voters. We carried out the unpopular pension and tax reforms when it was necessary,» writes Arbuzov.

An important reason for renunciation of devaluation was the NBU’s and the government’s belief that its benefits were greatly overestimated. They also did not share the implicit confidence of their opponents in its beneficial effects on the economy.

«In the country where households spend more than half their incomes on imported goods devaluation means a drop in real incomes of the population. It also means the need to increase energy prices, since higher prices for Russian gas would aggravate the problem of budget deficit at Naftogaz, mandatory rise in inflation and decline in GDP. In addition, it means a whole number of insolvable problems for the banking system. All elements, which we have considered in theory, have come in full force in practice in 2014,» reminded Arbuzov.

At the same time, he says there was another, even more important reason for renunciation of devaluation — the economy did not need it.

«In 2010 — 2013 the balance of payments was drawn with a surplus of US $420 mn. The capital and financial transaction accounts remained positive all the time and allowed to overlay the current account deficit,» reminded the politician.