IMF Financial Global Stability Report, September 2009

Based on the figure below, I really do not see positive changes in the health of the world financial system except for slightly smaller risk for the emerging economics and smaller liquidity risk.

Are we only half way through the financial crisis?

From NY Times: Having shouldered losses of $1.3 trillion to date, the I.M.F. estimated, banks still had to write off $1.5 trillion in bad loans or worthless securities. 

Power of money

Chris Dillow says: "...a research shows that, the more people think about money, the more selfish they behave. "

First ever personal bankruptcy case in Ukraine!

У Харкові з пенсіонерки Тетяни Осипової списали 300 тисяч гривень боргу, себто офіційно звільнили від кредитного тягаря, повідомляє "ТСН".
Це підтвердило рішення Харківського господарчого суду. Процедуру банкрутства можна запустити щодо кожного з громадян України, але до кризи відповідна стаття закону була незапитана.

Stereotypes a century ago

Ha-Joon Chang, "Bad Samaritans: Rich Nations, Poor Policies, and the Threat to the Developing World"

In his 1903 book, Evolution of the Japanese, the American missionary Sidney Gulick observed that many Japanese “give an impression … of being lazy and utterly indifferent to the passage of time”

...McPherson, a Viceroy of India (and therefore quite used to treacherous road conditions), wrote, “I found the roads so bad in Germany that I directed my course to Italy”...

British travellers in the early 19th century also found the Germans dishonest – “the tradesman and the shopkeeper take advantage of you wherever they can, and to the smallest imaginable amount rather than not take advantage of you at all … This knavery is universal”, observed Sir Arthur Brooke Faulkner, a physician serving in the British army. 

Bottoming out

Found here

State of Economics as a science in Russia and Ukraine

Based on a population size, I would accept Ukraine has 3 times fewer scientific documents in Economics and Econometrics than Russia does, and Russia has 2 times fewer documents than US. In reality the picture is grim.
Here is the comparison. 
The overall rankings in Economics and Econometrics reveal that over 1996-2007, Russia is 36th and Ukraine is 55th.
So, what sciences is Ukraine good at? Physics and Astronomy!

Dynamics of construction industry: slow recovery?

Construction industry in Ukraine started to slow down in the beginning of 2008 before the crisis hit other sectors in the Fall of 2008. That can be explained by the housing bubble -- prices have doubled between 2006 and 2007 and the real estate market was frozen since summer of 2007. There was simply no demand for apartments at such a high price. However, the prices started to adjust only in the second half of 2008 and now there are signs of recovery which can be seen from the following figure that reports a grow in construction since the beginning of a year relative to the same period of the previous year:

Crisis: Is it a time to buy Ukrainian?

The table below reports what share of consumer products sold in the first half of 2008 and 2009 has Ukrainian origin.

It seems that Ukrainians substitute consumption of imported goods for locally produced goods. The share of local production has increase from 51.4 to 54.0 %. It is also interesting that share of domestically produced cars has declined from 30 to 25% despite a temporary increase in import tariffs.

Doing business 2010 is out: how is Ukraine doing?

Better than last year but still not so great. Ukraine is #142 out of 183 countries and  moved up by  3 places. It moved up by 34 places in Protecting Investors category which caused the overall progress.

According to the report the business environment in Ukraine is above median in Getting Credit (30th place, moved down by 3 places), Enforcing Contracts (43,  +3), Employing Workers (83, +7).

It is really bad in Paying Taxes (181, +1), Dealing with Construction Permits (181, 0), and Closing a Business (145, 0).

This report is more accurate represenattion of business environment than Global Competitiveness Report because it is based both on subjective and objective data. For example, if we look on how the ranking for paying taxes is computed, it use hard data and compute an index as described in methodological section:

"Doing Business records the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year, as well as measures of the administrative burden in paying taxes and contributions. Taxes and contributions measured include the profit or corporate income tax, social contributions and labor taxes paid by the employer, property taxes, property transfer taxes, the dividend tax, the capital gains tax, the financial transactions tax, waste collection taxes and vehicle and road taxes."

Global competitiveness report 2009-2010

Ukraine has lost 10 positions. However, the value of composite index changed from 4.1 to 4 that is not significant change. Even though I agree with the assessment made by  the World Economic Forum, it is highly subjective and does not capture such factors as 100% hryvna devaluation that made Ukrainian exports more competitive. Among all rankings of institutional and business environment, I would trust "Doing Business" and "Governance matters"  produced by the World Bank more than GCR.
Having said that, here are the assessments:

Trade response to global downturns

Caroline Freund "Trade response to global downturns" found following regularities during the last four economic slowdowns (1971, 1982, 1991, 2001):

• "trade contraction follows the GDP decline and ... trade volume declines by about 1 percent on average in first year of its contraction"
• "The decline in the growth rate of trade (from historical average to trough) is sudden and is on average more than 4 times as large as that of income."
• "deceleration in trade value tends to be far greater than in trade volumes"

What to expect form the current crisis?

"Given current GDP forecasts and trade data available through June, our results imply that the decline in real trade in 2009 could well exceed 15 percent. In addition, global imbalances are likely to be mitigated during the crisis, and this may persist even after the crisis is resolved. Finally, food and beverages are likely to be the least affected products in the coming months."

New sorces of economic data

The current trend away from theoretical models that explain everything to empirical studies that focus on narrower practiacl questions is facilitated by new data sources. Google Finance just launch new indices that can be downloaded and used in economic analysis:

Google Domestic Trends track Google search traffic across specific sectors of the economy. Changes in the search volume of a given sector on google.com may provide unique economic insight. You can access individual trend indexes by clicking on the left-hand navigation.

Another example of new data analysis comes from V. Henderson et al. "Measuring economic activity from outer space". The data investigated by Henderson is actually large foto pictures (3Gb each file) that are available for downloading here.

Political economy of protectionism

Ukrainian MPs can not agree on almost anything: new pension system, tax reform, anti-crisis law, land reforms are debated for decades without reaching any consensus. However, they are very effective in imposing protectionists barriers against imports. After the previous temporary 13% import duties on cars and refrigirators expire on September, 7, the MPs of Party of regions, BYT, and Litvin's Block registered a new legislation that will introduce 15% import duties on cars and meat. It all comes despite the fact that all experts agreed that the previous protectionist measures were ineffective. Imports already declined by 51.3% relative to the same period of the previous year mostly due to almost 100% hryvna devaluation.

Such effectiveness in protectinist measures can be linked to political connections of main car producers in Ukriane with BYT party and refirigirator producers with Party of Regions. It is yet to be established how meat producers are connected to MPs.

Comparing two largest economic crises in recent hystory

A tale of two depressions by Barry Eichengreen and Kevin H. O’Rourke

the world is currently undergoing an economic shock every bit as big as the Great Depression shock of 1929-30. Looking just at the US leads one to overlook how alarming the current situation is even in comparison with 1929-30.

The good news, of course, is that the policy response is very different. The question now is whether that policy response will work. For the answer, stay tuned for our next column.

Main statistics of Ukraine: January-June

Going down:

GDP (1st quarter) is down by 20.3%, industrial production is down by 30.4%, investment is down by 43.3%, real wage is down by 10.3%

Going up: agricultural output is up by 3.8%, producer's prices are up by 4.9%, CPI is up by 8.5%. Extrapolating to the whole year we should expect inflation in the range 12-15%.

Signs of recovery of the baking system

Following the Bank of Russia refinancing rate cut to 10.75 pct on August, 10, Ukraine cuts key interest rate to 10.25 pct. The announced goal is to stimulate the real sector. It is not evident how quickly the banking sector will respond to the cut because there is announced interest rate is not directly linked to rates set by commercial banks. Also, there is a threat of accelerating inflation.

Still, it is a positive sign that the economy will start recovering sooner than expected.

Devaluation of hryvna and competitiveness

За январь-июнь 2009 года Украина экспортировала в Китай 970 тыс. тонн проката, в то время как за аналогичный период прошлого года в Китай было экспортировано всего лишь 11 тыс. тонн проката.

Как сообщил директор ГП Укрпромвнешэкспертиза Владимир Власюк, такое значительное увеличение объемов украинского экспорта в Китай связано со снижением себестоимости украинской продукции, которая сегодня ниже аналогичной китайской.

Raising import tariffs is a really bad policy

Responding to this:

http://www.kyivpost.com/business/bus_focus/45805

It would immediately hurt consumers – all 46 million people who live in Ukraine – because they would have fewer products at higher prices.

It would further worsen situation with corruption – domestic producers will attempt to influence the decision of policymakers on which sectors to protect, importers will try to avoid paying import duties.

It would cause a reciprocal response from foreigners who will put trade restrictions on our products and hurt our exporters.

Import substitution policy involves immediate costs and requires a long term strategy and coordinated efforts from all political parties for benefits to materialize: when new political leaders replace the old ones, policy should not be changed and I really doubt the ability of our leader to coordinate their efforts.

Imported products that replace local ones are not the cause of domestic economic problems. When people buy a car or computer they care the most about its quality and price and much less about its origin. The very unpleasant fact for local producers is that foreign companies offer better products at lower price.

There are many reasons why Ukrainian firms are far behind in the global race for consumers. One of the major obstacles to doing business in Ukraine is poor investment climate, anti-market regulations, widespread corruption, and almost no respect for the rule of law. Will the policy of import substitution resolve these issues? No, I am afraid it will make things worse.

Improving the investment climate and opportunities for doing business in Ukraine would be a daring task even for a benevolent ruler who cares about common people. Unfortunately, only a very naïve person would describe our politicians using words “benevolent” or “caring”. In current circumstances, the best policy for common people is if our leaders stay away from economics and focus on their political fights.

Ukrainian banks during the crisis

About the debt of the Ukrainian banking sector to creditors:

Першим банком, що оголосив дефолт за зобов'язаннями, став банк "Фінанси та Кредит", який у березні 2009 року не зумів повністю розрахуватися за синдикованою позикою у розмірі 70 мільйонів доларів, організаторами якої були Standard Bank, Raiffeisen Zentralbank та "Банк ВТБ".