Putin jokes

During the meeting with Ukrainian prime-minister Azarov, Putin "jokingly" suggested merging Gazprom and Naftagaz. Stock market reacted:

Hey, Eurosceptics told you so!

Op-Ed Columnist - The Euro Trap - NYTimes.com: "membership in the euro, which had encouraged markets to love the crisis countries not wisely but too well, turned into a trap."

Krugman explains how lack of flexible monetary policy disarms countries in Southern Europe. Is leaving the Euro zone an option for Greece? Krugman says that now it is possible.

High and Low Finance - Rescuing Greece to Protect Germany - NYTimes.com

High and Low Finance - Rescuing Greece to Protect Germany - NYTimes.com: "About the only thing Europe has so far accomplished is to make the International Monetary Fund look good. When the I.M.F. does a bailout, it imposes strict austerity terms, which makes it wildly unpopular, but it provides money at very low rates. Europe wants strict austerity and high rates. Subsidizing the irresponsible Greeks is simply wrong, or so they say in Germany."

On Euro problems from New York

Ukraine Yet to Fulfill All IMF Fiscal, Bank Goals (Update1) - Bloomberg.com

Ukraine Yet to Fulfill All IMF Fiscal, Bank Goals (Update1) - Bloomberg.com: "Ukraine’s efforts to shore up its finances and rebuild its banking industry have yet to fulfill the terms of the country’s International Monetary Fund program"

Preservation Follies by Edward L. Glaeser, City Journal Spring 2010

Preservation Follies by Edward L. Glaeser, City Journal Spring 2010: "To get an idea of the way that historic districts can freeze a city, consider two recent episodes. In 1999, Citibank sold a one-story branch bank on the corner of 91st and Madison Avenue to a developer who planned a 17-story tower for the site. But the corner was within the prestigious Carnegie Hill Historic District, whose distinguished residents didn’t like the idea of another tower in their neighborhood. Woody Allen made a short video protesting the plan."

Historic centers and development of cities

Goldman Sachs e-mails show bank sought to profit from housing downturn

Goldman Sachs e-mails show bank sought to profit from housing downturn: "Sen. Carl Levin (D-Mich.), chairman of the Permanent Subcommittee on Investigations, said four internal e-mails released Saturday contradict Goldman's assertion that it didn't seek to profit from the housing downturn. 'Goldman made a lot of money by betting against the mortgage market,' Levin said."

Kyiv Post. Independence. Community. Trust - Business - General - Yanukovych: Russia to pay Ukraine annually $98 million in cash for naval base rent starting 2019

Kyiv Post. Independence. Community. Trust - Business - General - Yanukovych: Russia to pay Ukraine annually $98 million in cash for naval base rent starting 2019

I am sure one can find plenty of guys who would outbid the Russian Government and rent the whole place for $100 million per year. That's cheap.

Natural gas deal

Presidents Yanukovich and Medveded signed a deal that lowers the price of gas for Ukraine in exchange for prolongation of stay of the Russian Black see fleet. A market reaction? Negative.

World Bank data access is really cool!

I have just checked the new World Bank data site and it works! I just downloaded the loans from the BIS reporting banks to Ukrainian banks and produce a figure. It took less than a minute:

Data | The World Bank

Data | The World Bank

World Bank is opening its vast data storage.

Кинах просит Азарова возобновить работу Совета предпринимателей - ЛІГА.Новости

Кинах просит Азарова возобновить работу Совета предпринимателей - ЛІГА.Новости: "Мы, как эскпортно-ориентированная страна, должны иметь гарантированную государством систему экспортной и кредитной поддержки, страхования рисков', - добавил он."

Not exactly sure what does he mean by introducing state guaranteed support of export and credit, but sounds really dangerous. If I am a private company, I should bear full responsibility for my actions, including exporting and external financing.

Ukraine May Cut Interest Rates, Central Banker Says (Update1) - Bloomberg.com

Ukraine May Cut Interest Rates, Central Banker Says (Update1) - Bloomberg.com: "April 20 (Bloomberg) -- Ukrainian monetary policy makers may lower the benchmark interest rate, the highest in Europe, if inflation slows, said Valeriy Lytvytskyi, an adviser to central bank Governor Volodymyr Stelmakh."

Finally, the NBU tries to manage domestic interest rate, which is killing the recovery of the economy by depressing investment. Unfortunately, inflation is still high despite considerable negative shock to the aggregated demand. The high inflation can be partially explained by the 2008 sharp hryvna devaluation followed by another devaluation in 2009. Still, the exchange rate pass-through should be already fully adjusted, yet high inflation persist despite stabilization of exchange rate.

Imports of Ukraine in Jan-Feb 2010, Ukrstat

As usual, fossil fuels and natural gas take 36 percent of all Ukrainian exports. It is really a shame, taking into account huge territory, large than France or Poland. Really, what are the chances there is no oil and gas hidden somewhere in Ukraine?

Construction materials are on the rise, growing 376 percent. It is a good sign of economic recovery

Umbrellas are the hottest Ukrainian exports

Umbrellas are the hottest Ukrainian exports , growing 8966%  relative to the same period of 2009

Source: Ukrstat

Is the crisis in Ukraine over? I do not think so

Ukrstat reports:

Industrial production in January-March 2010 grew 11%
but
Retail trade in January-March is 3% below the same period of 2009 and 17% below the level of 2008
and the really bad piece of statistics
Construction in January-March 2010 is 80% of the 2009 level and only 34% of the 2008 level

Therefore, I see that the externally oriented industries are moving towards the healthy recovery but internal demand and investments are still in very bad shape.

Kyiv Post. Independence. Community. Trust - Business - General - IMF proposes to Ukrainian authorities to increase discount rate, toughen bank refinancing

Kyiv Post. Independence. Community. Trust - Business - General - IMF proposes to Ukrainian authorities to increase discount rate, toughen bank refinancing: "IMF proposes to Ukrainian authorities to increase discount rate, toughen bank refinancing"

The document really suggests revolutionary changes to the Ukrainian Central Bank role and policies. The government should be desperately in need of external financing if they agree to sign this document.

Links, April 16

Ukranian News - Industrial Output Up By 13.8% In March: "Industrial Output Up By 13.8% In March"

Ukranian News - Tihipko Predicts Tax Code To Be Adopted In July - August: "Tihipko Predicts Tax Code To Be Adopted In July - August"

Януковичу предложат сократить треть исполнительной власти - ЛІГА.Новости: "Рабочая группа по законодательному и институционному обеспечению реформ Комитета по экономическим реформам при Президенте Украины будет рекомендовать главе государства сократить на треть количество центральных органов исполнительной власти."

Global crisis to hurt trade for up to 2 years-WTO Reuters: "Global trade will face lingering protectionism for up to two years, as the job market reels from the global financial crisis"

Правительство усилило независимость НБУ - Макроэкономика - Макроэкономические показатели Украины / Торговое сальдо // Delo.UA

Правительство усилило независимость НБУ - Макроэкономика - Макроэкономические показатели Украины / Торговое сальдо // Delo.UA: "правительство внесло изменения: определение ценовой стабильности как основной цели НБУ, финансовой стабильности как второстепенной цели."

Finally, the government is listening to the IMF -- fighting inflation should be given a priority.

Налоговики собрали 619 млн.грн. "зарплатных" штрафов - ЛІГА.Новости

Налоговики собрали 619 млн.грн. "зарплатных" штрафов - ЛІГА.Новости: "Налоговики собрали 619 млн.грн. 'зарплатных' штрафов"

According to the report, the tax irregularities related to payments of wages were found in 97.6% of all cases! I have mixed feelings. On the one hand it indicates an extremely high rate of tax evasions and room for increase in tax base, on the other hand it means that no one can feel safe under the current tax system.

China GDP Grows 11.9%, Highlighting Overheating Risk (Update3) - Bloomberg.com

China GDP Grows 11.9%, Highlighting Overheating Risk (Update3) - Bloomberg.com: "China GDP Grows 11.9%, Highlighting Overheating Risk...Investment contributed 6.9 percentage points to growth, consumption accounted for 6.2 points and net exports deducted 1.2 points, the statistics bureau said today. "

В Украине появится Министерство науки - ЛІГА.Новости

В Украине появится Министерство науки - ЛІГА.Новости: "'Итак, инновационной Украине - быть', - заявил Вице-премьер-министр."

Creation of the ministry of science is probably the stupidest idea this government came up with so far. What is next? Probably, the ministry of science will develop a five year plan to increase production of nanotechnologies by 500% and creation of perpetuum mobile by next century.

Prospects Weekly: Global inflation up 2% in Dec 09, US 10-year treasuries yields rising, possible fall in future ODA | A forward looking analysis of the global economy.

Prospects Weekly: Global inflation up 2% in Dec 09, US 10-year treasuries yields rising, possible fall in future ODA | A forward looking analysis of the global economy.: "Headline inflation in low-income countries jumped in late-2009 (y/y), as the negative base effects from the collapse in food and fuel prices during the acute phase of the crisis (from a year prior) fade."

IMF Survey: Capital Surges Can Be Difficult For Recipient Countries

IMF Survey: Capital Surges Can Be Difficult For Recipient Countries: "The unprecedented liquidity created by countries to fight the economic crisis could create problems for policymakers in some advanced and emerging market economies with relatively strong growth prospects and higher interest rates, the International Monetary Fund said in a new report."

Ukraine, deregulating financial market, goes against the overall trend. Given the amount of liquidity the IMF warns us, Ukraine will be a primary destination of foreign financial assets. The surge of liquidity  is likely to lead to inflation and asset bubbles. What can be done? The IMF advice goes exactly against of what the government of Ukraine is doing right now:

Countries’ policy responses

There are a number of potential policy responses to mitigate risks related to capital inflow surges, which include

• More flexible exchange rate policies, especially when the exchange rate is undervalued. A floating exchange rate provides a natural buffer against surges in global liquidity by making it more expensive for foreign investors to purchase assets and, as a result, reducing valuation pressures on domestic assets.

• Official reserve accumulation. By adding to reserves governments, in effect, hold on to some of the capital inflows.

• Reducing interest rates, if the inflation outlook permits, to lessen the attraction for investors seeking higher returns.

• Tightening fiscal policy when the overall macroeconomic policy stance is too loose.

• Reinforcing prudential regulation in the financial system.

Links of the day, April 13

How Has the Monetary Transmission Mechanism Evolved Over Time? Jean Boivin, Michael T. Kiley, and Frederic S. Mishkin NBER Working Paper No. 15879

Monetary Policy and Unemployment, Jordi Galí, NBER Working Paper No. 15871
The Return of Industrial Policy, Dani Rodrik

The credits in foreign currency are back

The parliament of Ukraine has voted on lifting the restrictions on loans in foreign currency (link in Russian). In addition, the MPs simplified the procedures that are required for foreign investments in Ukraine.
It seems that nothing has been learnt from the crisis and more strict regulations of financial markets is not what on the table. To the contrary, the ruling coalition hopes to attract more foreign capital inflows. While it is good to overcome lack of financing of the current government deficit, it will create the situation similar to the one that led to the collapse of the economy in 2008.

No tender requirements on preparations to Euro 2012

Local and state governments are allowed to spend on purchases of goods and services related to the Euro 2012 without tenders (link in Russian). This is a very strange decision that goes against the declaration to make government procurement mechanism more transparent.
The likely rationale for the decision is to expedite preparation to the competition which goes behind the schedule.

Origin of trust

In "CULTURAL BIASES IN ECONOMIC EXCHANGE?" Guiso, Sapienza, and Zingales estimate how trust between nations is determined in a gravity type of model, and report the fixed effects of trust by country of origin

Scandinavians are the most friendly towards other nations, while Southern Europeans suffer from being suspisious towards foreigners.

Entrepreneurship monitor

For future reference, a site on the global entrepreneurship monitor.

Silicon valley in Skolkovo

NY times has a large article on new government sponsored program aimed to promote innovations in Russia. As I see it, over the last decade the Russian government made all possible to kill small businesses and promote large, better state owned corporations. After the task was successfully accomplished, it is very hard to reverse the course.
Hayek argued that it is impossible to have an economic freedom without political freedom. Once the government limits political freedoms, the economic freedoms suffer as well. Of course every rule has an exception. China is one of them, but the argument should be tested over the longer horizon and China yet has to demonstrate the stability of its current model in the long run.

World Bank advice to the new government

World Bank drafted a document that outlines major challenges and set up steps and schedule of reforms needed in Ukraine over the last 3 years. Unfortunately, there are no signs that the government will follow the recommendations.