The Board of the National Bank proposes to develop a program of release of bonds of internal state loan for the financing of individual sectors of the economy.
This is stated in the decision of the NBU Council “Influence the policy of state borrowing and taxation policy on the monetary-credit sphere of Ukraine”, which was signed by the head of the NBU Council Bohdan Danylyshyn.
“A pragmatic approach to budgetary policy requires a transition from passive debt financing of the budget deficit an active role in the implementation of the strategic guidelines for the development and structural modernization of the national economy”, – stated in the text of the decision.
According to members of the Board, Ukraine’s economy needs a comprehensive programme of measures on financial and non-financial support for export and import substitution.
“With the aim of creating conditions for sustainable economic growth, develop a program for the implementation issues of special purpose bonds that will be considered by a special Fund of the state budget, funds from the issue of which will be allocated to support projects of development and modernization of economy of Ukraine (in particular, high-tech industries), export promotion and import substitution”, – the document says.
As you know, when granting the regulator powers to use manual emission channel in countries with weak institutions there is a high probability of corruption the allocation of funds. In addition, such decisions on financing selected sectors of the economy are a feature of the command-planned economy, not the market.
According to the Deputy head of the NBU Council Timofey Milovanov and economist Yuriy Gorodnichenko, UC any benefit from “productive issues” are short term in nature, “whereas the losses can be devastating.”
First, the aim of the NBU is to ensure the stability of the purchasing power of the hryvnia. However, the likely consequence of “productive creation” is the depreciation of the hryvnia and, as a consequence, to increased inflationary pressure on the national currency and potentially lower incomes.
Secondly, the effects of any expansive monetary policy are only temporary. In the long term between the emission and the level of unemployment there is no connection, according to an analysis by Milton Friedman and Edmund Phelps.
Thirdly, high levels of corruption largely generated by widespread government intervention in the economy that creates opportunities for bribery, abuse of office and other forms of corruption.
The authors recall that in the early 1990s, the consequences of “productive issue” became hyperinflation and the collapse of the economy.
Also, in the October inflation report published by the NBU, the regulator assesses
the growth of gross domestic product (GDP) in July-September at 3.1%, and marks a slowdown from 3.2% amid the deterioration of the dynamics of the most basic sectors of the economy and business expectations of enterprises.