Mykhailo Prokopiv
Ivano-Frankivsk National Technical
University of Oil and Gas
Economic Achievements and Problems of
Monetary Policy of Ukraine in the Years of its Independence (1991-2011)
The current stage
of the Ukrainian economic development places new demands to economic policy,
namely the need to shift the emphasis from the external orientation of the
economy on the activation and stimulation of the internal market. This monetary
policy of the National Bank of Ukraine, as a part of economic policy, should
ensure the appropriate monetary framework for sustainable social and economic
development - price stability and low inflation rate in the long run period.
All the ways of
monetary development can be divided into 3 stages each with its own features of
formation and conducting of monetary policy.
The first phase (1991-1996 years) is characterized by the creation of the national monetary system based
on the introduction of the ruble into circulation and the Ukrainian
preparations for the introduction of the national currency into circulation.
From the beginning, the main directions of monetary policy developed by the
National Bank of Ukraine in 1992 focused the National Bank’s efforts on stabilizing
the current currency and fighting the inflation. Thus, in 1992, the inflation
exceeded 2000%, and in 1993 it reached the value of hyperinflation - more than
10 000%. This led to a sharp decline in economic activity of manufacturers and
living standards. The growth of real GDP declined from 90.1% in 1992 to 77.1%
in 1994. In 1994, the National Bank started the restrictive monetary policy
that was proved by the slowdown in money growth in 3 times in comparison to the
previous year. It resulted in lower inflation rates noticeably from 501% to 282
%. Owing to realization of policy aimed at stabilizing economic processes the
National Bank and the Government’s policy during 1995 and the first part of
1996, prerequisites for the emission of permanent national currency - the
hryvnia appeared.
A new stage of
the monetary market of Ukraine began with the creation of an essential attribute
of statehood - national currency and it was regulated with monetary
instruments, which the National Bank had at that time.
The second phase
covers the period after the currency reform and up to the end of 1998. One of
the most important achievements of this period is the development of the stock
market of government securities (GS), which were issued in the form of T-bills (government bonds). But government
bonds gradually became the main source of financing the budget deficit. Real
economic growth did not happen and revenues grew very slowly. The introduction
of the exchange rate band in the second part of 1997 as a clear benchmark for
the participants of foreign economic activity helped to define the exchange
rate as a financial priority during carrying out the general monetary policy.
This approach was an important anti-inflationary factor, as a result of which
the National Bank effectively restrained the pace of internal depreciation.
The third phase (1999-2011) - Despite great destabilizing
influence of external and internal factors in 1999 from what the stabilization
processes in the real economy have begun. The dynamics of the main monetary and
macroeconomic indicators you can see in Table 1.1. Due to monetary policy in
2001 was exceptionally low inflation (6.1% per year) against the background of
economic growth (real GDP grew by 9.1%). During 2000-2006 the ratio of banking
sector credit to GDP (from 12.4 to 30%) increased significantly. Loans
accounted for more than 2 / 3 of total bank assets, which testified the
increase of credit risk [5, С.30-35]. Diagram of the main monetary and macroeconomic indicators you can see
on the chart 1.1. Monetary policy in 2007-2010 was designed to perform basic
functions – of the National Bank to provide price stability of national
currency. The fulfillment of this function was provided with the following
measures: to conduct an adequate interest rate policy, increase foreign
exchange reserves, take measures in foreign exchange regulation and strengthen the
exchange rate flexibility. To some extent such actions provided a stable basis
for the fighting the crisis phenomena. Monetary and credit market between
January and December of 2011 year is characterized by the continuation of
positive trends, done last year. In particular this year the following measures
were implemented: strengthening banks' credit activity, stable foreign exchange
market development, sustainable growth of deposits in banks.
In conclusion we
can say that at the initial stages of setting monetary system it has been made
a series of positive measures such as: stabilization of the currency, reducing
inflation (1991-1998), monetary stabilization policy, supporting the purchasing
power rate, stabilizing financial markets (1999-2011). Despite these policy
actions some mistakes were made in its policy as follows: the growth of money
supply emission, delaying the measures to rein in inflation (1991-1996), using
bonds as a major source of financing the budget deficit (1996-1998), reducing
the surplus trade balance, slowdown in GDP growth, the imbalance of public
finances (1999-2011).
So we can say
that the formation of monetary policy should take into account the
peculiarities of economy of Ukraine and the experience of foreign countries.
You should also follow prudent monetary policy aimed, on one hand at leveling
inflation and devaluation pressure; on the other hand - at supporting banking
system liquidity at a level that is sufficient to perform its functions, first and
the most to fulfill anti-inflationary and credit functions.
Figure
1.1 Diagram of the main monetary and macroeconomic indicators
Table
1.1 Dynamics of monetary and macroeconomic indicators in Ukraine
|
Year |
Real GDP |
Real wages |
Inflation rate |
Money supply |
|
1999 |
99,8 |
103,4 |
119,2 |
140,5 |
|
2000 |
105,9 |
103,6 |
125,8 |
146,1 |
|
2001 |
109,2 |
120,4 |
106,1 |
141,9 |
|
2002 |
105,2 |
115,6 |
99,4 |
141,8 |
|
2003 |
109,6 |
113,8 |
108,2 |
146,5 |
|
2004 |
112,1 |
120,8 |
112,3 |
132,4 |
|
2005 |
102,7 |
131,5 |
110,3 |
154,3 |
|
2006 |
107,3 |
111,7 |
111,6 |
134,5 |
|
2007 |
107,6 |
110,3 |
116,6 |
151,7 |
|
2008 |
102,3 |
107,2 |
122,3 |
130,2 |
|
2009 |
85,2 |
90 |
112,3 |
94,5 |
|
2010 |
104,2 |
110,2 |
109,1 |
121,4 |
|
2011 |
104,8 |
111,3 |
110,1 |
120,8 |
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