How to get rid of illusions? (Polemic notes)
How call the ship so it will float. For example, the owners of one of the firms had been called their company by the name of the "Stone of the Dead" or "the Box of the Devil". The stone is known for accumulation of the negative energy of the host. However, when it reaches over limit - the Devil opens the box, and all the negative energy volume spill out on the owner, destroying his life. This association with the company's customers remembered after watching the some Ukrainian talk-show. Author had been struck by the program not from a pre-election fight - here everything is clear. But the other thing really surprised. Under the "noise" of controversy, candidates and (or) their assistants as a means of argumentation constantly publicly declared the catastrophic figures of the Ukrainian financial system, which, frankly, in the present situation should be kept under lock and key.
We will draw your attention to one of the factors of such a state of affairs, which not only affects the economic system of any state, but also exists in the global sense for more than 70 years at one or another scale, and that it has not been thoroughly studied in the Ukrainian context. This phenomenon is so-called "shadow banking", which cannot be quickly eradicated, but in the short to medium term it is possible to limit the scale of it influence on the system of public administration. The state, international financial organizations and lenders are obliged to do this. Let us first define terms. The very term "shadow banking" was used firstly by economist Paul McCaley in a 2007 speech at the Annual Financial Symposium organized by Kansas Federal Reserve in Jackson Hole, Wyoming, USA. In Europe and America shadow banking drew the attention of many experts for the first time due to strengthening its role in transforming residential mortgages into securities (securitization) before the start of the 2008 global financial and economic crisis. This mechanism began with the provision of a mortgage, which was then bought and resold to one or more financial institutions, until it is included in the mortgage loan package that is used to secure the securities that are sold to investors. The value of this security was related to the value of mortgage loans in the package, and interest from secured by mortgage securities was paid out of regular payments to borrowers of a loan. Thus, virtually the entire mechanism went beyond the direct vision of financial regulatory bodies. To date, the amount of shadow banking operations has approached 100% of world GDP. According to the Financial Stability Board (FSB), the shadow banking system includes any lending relationship with structures outside the official banking system. Shadow banking participants include structured investment companies, hedge funds, investment banks and brokers-dealers who operate through REPOs loans. The main features of the activities of shadow banks is that they do not serve the real sector of the economy and the population (there are clients of traditional banks), but help group the capital received by banks in the form of derivative securities and alternative financial instruments, because they hold short-term money in the money markets and use them to acquire long-term assets.
At the same time, in our opinion, in the early 2000s the boom of shadow banking began not in the Western civilization, but in China, which was under the influence of the boom in the socialist economy of the era when cheap loans were only available for large state players, who, through non-bank intermediaries, lend credits to those subjects of the economy which didn't have access to investments of this sort. Moreover, it wasn't and still isn't only about the medium and small business of all forms of ownership, but also about the regional economies of the Chinese provinces, which, without hope for direct revenues from the state budget, are forced to subsist, mainly thanks to shadow banking. The toxicity of the Chinese economy is determined by the fact that, in spite of the efforts of the administrative center, the phenomenon has become practically legal. For example, among the official financial figures of the People's Republic of China, one of the key is the growth of non-bank organizations and non-bank capital. This indicator, and also - the extremely high refinancing rate - the main markers of the presence in the financial sector of the state a developed system of shadow banking, which is a banal "pyramid". When all levels of this financial "pyramid" work synchronously - the economy is viable. But if happens any cataclysm - the pyramid is buried like a card house, bringing with it not only financial but also systemic crises with all their social consequences. The matter has come to the conclusion that the largest financial-industrial and shadow players began to provide reserve funds of their institutions to the treatment of non-bank intermediaries. And this means raising the risk of a deep financial crisis.
In order to avoid tragic events, at least within the national financial and credit system, the Chinese government traditionally provided assistance to state corporations if they were in a difficult situation. Due to this, investments in the Chinese economy were considered more than reliable. Therefore, investors didn"t bother themselves with in-depth studies of the situation in Chinese counterparties. However, since about 2015, this practice has stopped. Bankrupts were asked to solve problems themselves, which caused not only the crisis of the corporate sector, but also placed on the agenda the issue of unsecured guarantees to external and domestic investors. Began capital flight, manufacturing transfer abroad, etc. This questioned the uncompetitiveness of China's national GDP. It got to the point that the issue of shadow banking became a topic of discussion of the XVIII and XIX Congresses of the CCP.
However, the analysis of the situation in the Chinese economy is the subject of another article. We recall here the Asian variant of the shadow banking model just as an example of attempts by the national leadership to avoid the tragic consequences for the economy. First of all, pay attention to the attraction external players into the shadow banking system, through which you can adjust the stability of the national financial system; access to new financial markets and gain control over the global financial system; the withdrawal of a huge mass of sharply weakening national currency - into new markets. This involves not only and not so much about the notorious payments in the national currency, but also about bringing the weakened economies to global infrastructure projects - for example, the Belt-Way initiative, the main dividends from which China gets through the same calculations in yuan, Chinese supply raw materials, labor, etc. But for the sake of objectivity, the same can be said of the now revived Western infrastructure project for Africa, the Caucasus, Asia and Europe - the so-called Southern Corridor. Although the Chinese project is larger, the financial essence of both is one and the same: the desire to maximize the cost reduction of infrastructure costs for national GDP as a lifejacket for the economies of the initiating countries; diversification of supply routes for different types of natural resources, their sources and suppliers.
Let's return to the Ukrainian realities. Recently, in the framework of the aforementioned television show, ex-prime-minister & political leader Yulia Tymoshenko informed about the difficult access to loans in Ukraine. The extremely high NBU discount rate and refinancing rate. We remind that, in relation to the interpretation of the NBU, these indicators, respectively, mean:
- Percentage for which financing is provided for commercial banks. Having a monopoly on this transaction, the NB regulates the credit market through the determination of the discount rate; - change of credit conditions for organizations in order to support and develop the sphere.
According to the NBU, the discount rate in May 2019 amounted to 17.8%, which, according to Yulia Tymoshenko and her opponent from opposition Yevgeny Muraev, from close circle of ex-President of Ukraine Victor Yanukovich, this marker is one of the highest in the world. Thus, the access to credit for the average participant in the Ukrainian market is minimal. Exception is made by players who have lobbyists among influential pro-government financial - industrial groups. That is, against the backdrop of total corruption (in 2017, Ernst & Young awarded Ukraine the 1- st place in the world) within the national control system, ideal conditions were created not only for the functioning of the shadow banking system in the state, but also for its transformation into a world transit hub - as a result, has been estabilished a gray zone weakly controlled by world financial institutions.
Ukrainian integration to the world system of shadow banking explains some of the statements made on the current talk show also. For example, the words of the deputy of the Parliament (Verkhovna Rada) of Ukraine Evgeniy Muraev that only about 30% of credit funds (if it is true) reach Ukraine's economy. It is mean about moneys what allocated to Ukraine from international financial organizations (a number of experts argues that in reality this share is even lower, seeing it as an occasion for an international anti-corruption investigation not only in relation to the recipient of loans, but also international lobbyists, including officials).
Now let's see what's going with our European partners. If, according to Charles von Clausnevitz, "Politics is a concentrated expression of the economy", then the EU's foreign policy reflects the hopeless chaotic moving of European structures in search of reliable lenders against the backdrop of a systemic crisis in the Eurozone, the apotheosis of which is expected at the end of the current 2019 - early 2020 years. This also explains the existing of involving national economies of European countries in the system of shadow banking led by China. In this regard, one can partly support the thesis of Tymoshenko about the fact that the main reason for the recent situation with return of Russia to the PACE is the extremely weak economic positions of Ukraine. At the same time, it should be added objectively: against the backdrop of the collapse of the European economy, the pace of European integration is subordinated to the factor of economic stability. The lowest stability rates make the higher the anti-unionist mood in the EU. This is especially evident in the countries of the countries where the economic crisis is already clearly felt.
If it's so, the only way to strengthen Ukraine's position on the international arena is to facilitate the access of Ukrainian national producers to cheap loans. This can only happen by relying on national market players (both producers and consumers) as investors, and - dismissing and clearing the Ukrainian economy from debts - albeit through default - through international investigations, including in relation to international beneficiaries lending.
At the moment, inside Ukraine or beyond its borders no persons or institutions who could to say about the real state (and not on paper) and the availability of reserve funds of Ukrainian banks and insurance campaigns. And what part of it is involved in the national economy, and which - is traveling abroad - is a big question. In this state of affairs, we can only talk about a thorough study of the state of affairs and radical purge - before new lending.
Analyzing previous experience, we note that at one time, the path of default as a purification means was prompted for the Yeltsin team from the famous American financier Stanley Fischer, who proposed it to the Russian government headed by Sergei Kiriyenko. Thanks to the refusal to pay due foreign credit obligations, the country get rid of "bad" assets and to facilitate their redemption by international investors. Due to this, the new national FIGs and various interest groups also became more active and (or) appeared. As a result, the balance between domestic and foreign investment has become virtually parity, there has been a change of elites, the basis for a broad structural management reform has been prepared. The Russian default of 1998 should be a lesson for the Ukrainian economy, not only in terms of preventing consequences and attracting investment. The struggle between world centers of global shadow banking - the United States and China - also dictates the brutality of the struggle for control over international organizations, including such international financial institutions as the World Bank and the IMF. What does this mean for Ukraine?
If briefly - the state may have a chance in organizations focused on cooperation with the US, such as WB. Prospects of Kiev in European financial and credit organizations will decrease drastically. For example, the Ukrainian side should be active in connection with the arrival of the new head of the World Bank, which announced the revision of the acting & future programs priorities. On April 5 of this year, David R. Malpas was elected President of the World Bank Group. The event was ignored by the Ukrainian politicians in connection with the presidential election. But in vain: the former Deputy Minister of the Economy of the United States on international affairs repeated the thesis of US President Donald Trump that, in the interests of Sustainable Development, the WB should review its own investment and credit policy, oriented, first of all, to China as the largest lender of bank loans, and on Chinese infrastructure projects, such as "Belt - Way". For China, this means deepening the crisis, and for its partners - the participants of global initiatives - parting with the dreams of Chinese investment and the stiffness of the so-called debt diplomacy of the People's Republic of China, which is widely practiced by the Chinese side in proceess of the global crisis deepening. If for Tramp the review of the credit policy of the WB is an argument for pressure on the Chinese leadership, then for China - an argument for mobilizing the European forces to elect the pro-Chinese director of the IMF, which is traditionally elected among Europeans. For this, the Chinese need to have control over the European structures that define the EU's policy in strategic areas. The involvement of national states in the shadow banking system, including against the backdrop of deepening the crisis, will directly affect the role of the latter and their games in European organizations. Most likely, European lobbyists which had been engaged by China will be able to fulfill their task. In spite of the fact that they didn't fully understand in what they've stepped into. But for European politics, it's more important to solve urgent tasks. First of all, to raise funds for the promotion of their short-term ambitions. There interests are more important for European partners of Ukraine than to deep into thinking what will take after 3-5 years. Because for the actions of current politicians and officials will be to answer the successors.
In this regard, it would be appropriate to look differently at the widely discussed revanchist "success" of the Russian Federation in the PACE. For example, the Ukrainian side should draw attention to the fact that the situation with PACE and supposedly "success" of Russia is by no means independent actions of the leadership of the Russian Federation or Russian diplomacy, and European lobbyists of Russia, above all. All they are working in the interests of their main lender - China Thus, the Russian side hopes to get at least limited access to projects that are lent to the IMF. That is, critically dependent on China, Russia is now forced to act according to Chinese patterns, according to which the main method of strengthening influence in Europe is precisely the so-called. "Debt diplomacy". It serves as one of the tools to counter Russian-Chinese expansion in international structures.
For Ukraine, therefore, critically is convergence with groups of financial interests that can withstand China in the struggle for Europe is becoming urgent. Another thing is that none of the Ukrainian presidents has thought till these days how instead of the amorphous and unwholesome Ministry of Foreign Affairs in its traditional sense - to create a new structure oriented on external economic efficiency, when all the consular and diplomatic divisions would work as an just infrastructure - that is, carry out routine diplomatic functions and procedures and serve the interests of key units. This is especially true now, when, firstly, Ukraine faces the issue of countering debt diplomacy - on any side. Secondly, now is time when a country has to put a dilemma in front of external lenders: either the refusal of the Ukrainian side to pay off the wrongful external debt and per cents for its servicing - and then the lenders will not get anything. Or - as an preferenced for Ukraine - the refusal of lenders from interest on service and the commitment to their tight political lobbies of Ukrainian interests in international structures - then lenders will not get additional revenue, but the principal amounts of loans will be returned. It is clear that for all stakeholders, the second option is more deserving.
However, for its implementation, an international independent anti- corruption investigation should be conducted both within Ukraine and among external lobbyists, including lobbyists in international organizations, as mentioned above, as well as an international audit of the entire Ukrainian financial and credit system. Moreover, the punishment of the perpetrators should not be an ending goal in the investigation. The main thing - the return of credit funds that have not reached the Ukrainian economy and repayment at their expense of part of the external debt.
There is one more solution: Ukraine's refusal from its own ambitions like an independent player in response to pressing debt diplomacy from different directions. It goes without saying: this way does not promise any joyous prospects. Ukraine will turn into a banal satellite, a wedding general, about which will be reminder sometimes during the celebrations. And now, let's take a closer look at the situation around the economies of those countries that have become drivers for the return of Russia to the PACE and, thus, participants of the modern Munich Betrayal. Because, as you know, the aggressor cannot be gratify - his appetites will always grows as we weaken the resistance.
Let's turn to terminology again. According to the Dictionary of Banking Terms, debt diplomacy as a type of economic diplomacy is "the most important means of foreign policy of the state, that using the capabilities of traditional diplomacy and the structures of the business community to achieve simultaneously foreign economic and political goals. Debt diplomacy as a kind of Economic diplomacy is necessary to describe the mechanisms and methods of involving the state (states), capital and business in foreign economic activities by means of foreign policy in two - multilateral international relations, by involving in the system of debts of weaker external actors on a consciously inadequate basis. Simply put, debt diplomacy is a sort of building of the "pyramid", which involves weak players and forced to perform services, work, etc. on the amount unadequate for the size of the country - debtor of the loan. However, instead of the promised funding and large dividends (not only the state but also the national pro- government interest groups), in fact, lenders offer debtors to pay their jobs or services at the expense of national budgets or to provide access to strategically important assets. Or (in case of resistance and refusal of the debtor) - making change of power.
An example could be the involvement South Africa to BRICS , when President Jacob Zuma was promised not only numerous loans and financial assistance for the national economy, but, above all, funding for industries and facilities controlled by the presidential clan. How response to the promise, the Chinese side was not only granted access to the South African economy, but President Zuma himself was the main mediator in advancing Chinese interests throughout Africa, in general, and to continental organizations, in particular. As a result, when the Chinese side gained control over the strategically important for the economy of the People's Republic of China exporting countries, as well as continental organizations, the political career of Zuma went down and ended in impeachment. The Chinese did not rescue Zuma. Approximately the same thing happened with Pakistan's previous prime minister Shahid-Khakan Abbasi, an opponent of infrastructure projects such as the Belt-Way, in which, instead of the expected real investment in infrastructure construction, the government was offered to fully fund all works from Pakistan's budget in by paying off part of the national debt to China. But the force stability of the prime minister and his refusal of Chinese proposals have become the reason for the resignation of the Pakistani leader. As the number of "rebels" from close circle ex-chinese friends like Pakistan increases, the foundations of such a powerful international pro-Chinese organization as ASEAN is falling apart. Situation was used by US opponents of the People's Republic of China, initiating the creation under the roof of India of a similar organization, united under the new basis of former Chinese partners.
Is not the same thing happening now in the PACE and in the EP? The previously mentioned shadow banking is a source of corruption. But what has happened in the PACE is also a source of corruption and debt diplomacy politics. Given the Russian and Chinese contributions to the financing of the political forces included in the new EP, the Russian (Chinese) participation in the economies of the countries that voted for Russia's return to the PACE, as well as the involvement of the former and acting elites in the Russian (Chinese ) projects - the picture becomes more than clear. Then we should consider voting by Italy, Turkey and Germany. For example, Germany is one of the largest exporters to China. Ex- Chancellor Gerhard Schroeder, now head of the Nord Stream - 2 consortium, links the way out of the crisis and the rise of the German economy with the creation of a transport infrastructure hub in Europe, to be built with Chinese participation but under the Russian signage. Or take a mysterious vote for the return of Russia to the PACE by representatives of the Germans "greens". This is also attributed to some German experts by obtaining a part of the dividends from the "green bonding" (trading in securities, the proceeds of which go to the ecology). Most of the dividends are received by China (it is his interests behind the supposedly British initiative). But some per cents from this sum is sending to the Germans. So, haven’t any sense in questions to Germans politicians with the Russian's-Chinese backstage support.
Voting on the return of Russia to the PACE by the Turkish delegation show only about one thing: the deep systemic crisis in the country - political and financial, electoral failures of the ruling party headed by President Erdogan is something that does not allow the Turkish side to be distracted by sentimentalities like supporting the brothers - Kirimli. Another example of such a course of events, motivated by a deep systemic crisis, is the position of the Italian delegation. Sense of the crisis that broke out, first of all, in the banking sector in Italy, due to lending to Turkish banks, including through participation in shadow banking. Turkish banks were not able to pay on time - and as a result - the toxicity of the Italian financial and credit sector began to spread actively to the financial sectors close associated with France, Spain, Portugal, etc.
Another clear marker is the voting of the delegation of Moldova to the PACE. The choice of the Moldovan delegation not only clearly demonstrated whose interests are behind the recent events in Chisinau, but also explained a rather sluggish reaction to events in RM from European structures. Despite the threat of seeing Russian tanks near the borders EU.Accordingly, representatives of these countries will vote for those who will give cheap loans. Ukraine cannot provide such funds. Russia - too. But behind the back is the global sponsor - China. The price of the issue is not that much, especially if we recall the rate of benefit from the involvement of Europeans in the scenarios of Russian / Chinese sponsors. _______________________________________________________________
Summing up, you can say a little bit.
Now there are mutual allegations of Ukrainian government and opposition in the absence of patriotism of both Ukrainian sides or lack of intensity of persuasion - in the talks of the Ukrainian delegation with euro-officials and national delegations of the PACE countries. Such allegations are not worthy of attention: it's just a letting of steam, a certificate of impotence, and a misunderstanding of what's happening. With the aim of to understand how and with whom need have close relations - you need a completely new brain center, which will work on the advance Ukrainian interests, which will replaced an awkward and unwieldy monster called the Ministry of Foreign Affairs. But in order to communicate and negotiate on a parity basis, it is necessary to have the will to self-purify, it is necessary to show not only the new faces, but also the new approach to the foreign economic policy of the state. It is necessary to clearly define and specify the interests of Ukraine and create a single team, authorized to conduct any formal or informal talks on behalf of Ukraine, with a broad consensus representation of the most influential interest groups.
Finally, it is worth ridding itself of romantic illusions about the traditional way of conducting international economic relations, the dream that other states will support Ukraine always only through the status of Ukrainian "partners". Now is coming the time for pragmatists. If this is not understood, then Ukraine have risk being in the role of a teenage girl who found out about her own pregnancy only during childbirth.