12:39 16.12.2013

Ukraine's economy could have collapsed if association agreement with EU had been signed now - Azarov

5 min read

If Ukraine had signed an association agreement with the European Union under the current conditions, this would have inevitably led to its economy's collapse and default due to dramatic increase in the trade deficit and insufficient foreign currency reserves, Prime Minister Mykola Azarov said.

"We want to agree with the EU on conditions for a transition period that would help level off our trade balance," Azarov said at a nationwide roundtable meeting under the slogan 'Unite Ukraine' on Friday.

"It is necessary to eliminate the obvious misbalances in the tariffs and quotas on a number of farming products," Azarov said.

The government also plans to resume financing from the International Monetary Fund (IMF), but this should be done on conditions acceptable to Ukraine, Azarov said. "It is unacceptable to sharply increase utility tariffs, cut social expenses, and freeze salaries and social allowances," Azarov said.

Simultaneously, Ukraine intends to resolve all issues in economic relations with Russia that could lead to $15 billion trade deficit in 2014 at a session of a Ukrainian-Russian interstate commission on December 17, he said.

The premier said that the government had hoped to minimize the risks, but that it had failed to do this before the EU Eastern Partnership Summit in Vilnius.

Azarov said that two foul blows were entering the World Trade Organization (WTO) under unfavorable conditions and the unfair gas agreement of 2009, which has resulted in the losses of over $20 billion in forex reserves, although Ukraine managed to cut purchases of Russian gas to 26 billion cubic meters this year.

He said that due to measures to restrict Ukrainian imports taken by Russia, the deficit of the balance of trade with goods with the country this year came to $7 billion. The prime minister said that in January-September 2013 exports of tractors and cars plunged by 73%, that for aircraft – by 56% and wagons – by 40%.

He said that after the decision of three countries of the Customs Union in September to deprive Ukraine of the advantages of a free trade zone in the Customs Union if the country signs the Association Agreement with the EU, it would have reached $15 billion in 2014. In addition, this would have resulted in the full stoppage of aircraft building, the further sharp decline in the defense and industrial complex, energy and shipbuilding and the loss of sector resources worth 7.7 billion [likely of U.S. dollars]," Azarov said.

The premier said that early last summer he asked partners in the EU to place orders in Ukraine and participate in the joint investment projects, although he did not receive a clear response.

Azarov also said that the government tried to convince the International Monetary Fund (IMF) of the necessity of providing a loan to Ukraine on the conditions that would not be stereotyped and took into account the advantages of the domestic market, while the fund a week before the summit in Vilnius again put forward even tougher conditions.

"Having $19 billion in reserves, we cannot go towards the obvious default," he said. He said that next year Ukraine would have required $40 billion next year. The premier obtained the figure by adding the deficit of trade with goods with Russia ($15 billion), that with the EU ($10 billion) and payments on debts ($15 billion).

"Finally, $40 billion [in expenses] compared with $19 billion of reserves," Azarov said.

He said that the negotiations with Russia on December 17 would help restore trade and economic relations in full and avoid there being the projected $15 billion deficit in trade with Russia next year.

Azarov said that it is planned to sign an action plan to regulate trade restrictions in bilateral trade for 2013-2014; an intergovernmental agreement on the realization of state support to resume mass production of An-124 aircraft with D-18T engines, intergovernmental memos of cooperation on the creation of space super-heavy missile system and a memo of intent to stir up cooperation in shipbuilding at the level of ministries.

Among other documents are an intergovernmental protocol on supplies of goods under industrial cooperation in 2014, a memo of joint actions on the organization of the building of a transport pass via the Kerch Strait and an agreement on the quick notification about nuclear disasters and on the exchange of information in the nuclear and radiation safety areas.

Tilting at the current Association Agreement with the EU, Azarov said that Ukraine cannot sharply cut off budget support for the coal sector, which could result in firing 65,000 out of 150,000 miners, and the agricultural sector, which has nine million private farms, which produce over the half of the country's milk and around 40% of its meat.

The premier said that the present annual quota for wheat of one million tonnes and poultry of 20,000 tonnes are small, and the absence of quotas for exports of sunflower seeds and rapeseeds could result in the loss of fertility of land and losses of the oil-refining sector.

Azarov added that the schedule of the implementation of the requirements of the Energy Community which Ukraine has joined demands investments of EUR 100 billion in the energy sector by 2020 and another EUR 6 billion in the stimulation of renewable energy.

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