Financial Systems and Financial Reforms in CIS Countries

At the beginning of 1990s the Soviet successor states started to transform their financial sectors to meet the needs of the emerging market economies. Following a decade of transition, results differ. Although the Baltic States were able to build quite successful financial systems, in the CIS countries financial systems remain a major obstacle to economic growth. The hyperinflations of the early 1990s, the financial scandals that followed the collapse of monobank systems, and subsequent incomplete progress in constructing non-bank financial institutions and effective regulatory structures have had adverse consequences. These include weak bank balances sheets, high real interest rates, and poor access to capital for small enterprises and start ups. With a few exceptions, nontransparent regulation, inadequate disclosure frameworks, and weak protection of shareholders rights continue to limit investor participation in CIS financial markets. The absence of effective threepillar pension systems further limits the demand for domestic debt and equities. Fortunately, there are signs of improvement. Bank lending and deposits are growing in many CIS economies, the proportion of bad debt in bank credit portfolio is falling, and lending and deposit interest rate spreads are diminishing. The solid economic growth recorded since 1999 in many CIS countries is helping memories of the 1998 financial crisis to fade, and stock exchanges in some CIS countries are currently at or near record levels. Financial systems in CIS economies may be moving toward the successful frameworks put in place in the new EU member states. However, because they have not benefited from the extensive foreign direct investment that recapitalised banks in Central Europe, financial stability in many CIS countries remains open to question. This paper is built as follows. Chapter 2 overviews major reforms in bank and non-bank financial institutions after 1991 followed by analysis of changes in ownership (Chapter 3) and changes in market structure (Chapter 4). Chapter 5 discusses the major trends in the CIS financial sectors and Chapter 6 concludes.financial reform, transition, banks and banking, capital markets

Composite Leading Indicators for Ukraine: An Early Warning Model

The project has undertaken the following tasks: Based on an analysis of the pattern of growth of the Ukrainian economy since the end of the post-Soviet recession (the year 2000) we have formulated the hypotheses concerning the factors preceding/affecting the upturns and downturns (with a focus on the latter) of the country’s growth; We have studied international “best practice” in early warning indicators in order to design a similar system for Ukraine; We have selected the relevant indicators, consistent with our hypotheses and used a probit model in order to experiment with these indicators; The final set of indicators used in the model included the following lagged independent variables: changes in the value of export, changes in real Exchange rate of the hryvnya, producers’ price index adjusted for domestic price inflation index and the IMF’s metal price index, bank credit interest rate, changes in the industrial output of the European Union; our dependent variable (which was used as a proxy for the overall economic growth) was changes in real industrial output; The model was used to formulate a warning forecast for the Ukrainian economy for the second half of 2008 based on the data for the January 2000 – June 2008 period; all predictions for the second half of 2008 have delivered warning about a downturn of the Ukrainian economy; We ran a few additional experiments with the model, and We have recommended several further steps of analysis toward a full implementation and institutionalization of such a model in the near future.business cycle, forecasting, econometric model, Ukraine, Ukrainian economy, economic growth, GDP, early warning indicator

Composite leading indicators for Ukraine: An early warning model

Our objective has been to experiment with diverse economic indicators in order to help equip Ukrainian policymakers with a relatively simple tool, which could deliver warning signals about a possibility of upcoming economic problems and thereby assist the Government in designing policy instruments which would help prevent or soften a slowdown or recession. The project has undertaken the following tasks: Based on an analysis of the pattern of growth of the Ukrainian economy since the end of the post-Soviet recession (the year 2000) we have formulated the hypotheses concerning the factors preceding/affecting the upturns and downturns (with a focus on the latter) of the country’s growth; We have studied international “best practice” in early warning indicators in order to design a similar system for Ukraine; We have selected the relevant indicators, consistent with our hypotheses and used a probit model in order to experiment with these indicators; The final set of indicators used in the model included the following lagged independent variables: changes in the value of export, changes in real Exchange rate of the hryvnya, producers’ price index adjusted for domestic price inflation index and the IMF’s metal price index, bank credit interest rate, changes in the industrial output of the European Union; our dependent variable (which was used as a proxy for the overall economic growth) was changes in real industrial output; The model was used to formulate a warning forecast for the Ukrainian economy for the second half of 2008 based on the data for the January 2000 - June 2008 period; all predictions for the second half of 2008 have delivered warning about a downturn of the Ukrainian economy; We ran a few additional experiments with the model, and We have recommended several further steps of analysis toward a full implementation and institutionalization of such a model in the near future

Prospects for EU-Ukraine Economic Relations

This report looks at the prospects for economic integration between Ukraine and the European Union. The so-called Orange Revolution of late 2004 saw the question of Ukraine’s future geopolitical orientation re-emerge, and the idea of closer integration with the EU received wide social support. Yet, already by mid-2006 the political support to the idea of Euro-Atlantic integration seem to diminish. It is not clear if, how and when the idea of deeper integration with the EU will be put into action. Although the main steps have been charted at the official level (Ukraine becoming WTO member and both sides start to gradually lower barriers to trade in manufacturing goods), neither their timing, nor the steps going beyond them can be specified with any degree of certainty. This report aims at showing the possible and optimal policy options.Ukraine, European integration, trade, reforms, transition

Evidence on the bank lending channel in Ukraine

The paper examines evidence for a bank lending channel in Ukraine. We use a panel of bank balance sheet data to estimate the response of bank lending to changes in monetary policy between 1998 and 2003. In particular, we segregate banks according to their asset size, capitalization and liquidity standing to test whether lending responses differ depending on the strength of a bank. The main result is that undercapitalized banks are more affected by a monetary policy change than is an average bank, which is consistent with the bank lending channel hypothesis, suggesting that monetary policy can affect deposits of commercial banks forcing them to change lending, which influences the amount of investment in the economy