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Tuesday, April 16, 2024

Was Orban really wrong?

Recently, Hungarian Prime Minister Orban called Ukraine “a non-existent country in the economic sense.” He explained his conclusion by the fact that today the entire budgetary expenditure part of Ukraine is borrowed funds or international financial assistance.

Immediately, in response to him, the Ukrainian Minister of Finance stated that by the end of March this year, Ukrainian gold and foreign exchange reserves (GFR) had reached an unprecedented size of almost 32 billion US dollars, which, in his opinion, should probably indicate a positive economic state of Ukraine and refute the words of Orban.

As they say, the devil is in the details, although it is difficult to call the country’s gold and foreign exchange reserves a trifle. In order to understand better, it is necessary to look not so much at the quantity of reserves as at their quality.

In a conceptual, semantic key, the very expression “gold-currency” means that the state’s reserves should be kept in gold and in foreign currency. The trends of today’s turbulent times, when a military conflict is unleashed in Europe, and the dollar has ceased to be a reliable means of preserving state savings, are such that an increasing number of countries in a short period of time turned their attention to the eternal and reliable equivalent of money – gold. They, these countries, are trying in a short time to change the balance of gold reserves in favor of the prevalence of gold in them as a reliable tool for preserving capital.

Thus, out of 240 billion dollars of gold reserves in France, 160 billion dollars is gold (~67%). Of the 66 billion dollars of gold reserves in the Netherlands, gold takes 40 billion (~60%). Of the 170 billion dollars of gold reserves in Poland, 15 billion (~ 9%) of gold. Of the 43 billion dollars of gold reserves in Belgium, the share of gold is almost a third, or 15 billion dollars. Half of Austria’s gold reserves ($36 billion) is occupied by gold. Of the $100 billion in Spanish gold reserves, 19 billion are held in gold, or 19%, respectively.

In Ukraine, gold reserves are only $1.7 billion or 5%, the rest is currency and special drawing rights (the right to debt). They occupy more than 90% of domestic gold reserves.

What kind of currency, the minister did not say either, but meanwhile, it is obvious that the lion’s share of it is borrowed foreign currency, nothing more. The minister deliberately did not boast about the quality of these foreign exchange reserves, he left the concept of liquidity of reserves in foreign currency, when the nature of the currency is assessed and weighed, in other words, its presence and obligations in it to creditors. Obviously, if the available currency is, in fact, borrowed money transferred by foreign creditors, then the liquidity of such a reserve is extremely low, because it is not yours, you will have to give it back. Simply put, your debt obligations equal or exceed your cash flow. Foreign exchange reserves of Ukraine are mainly debt obligations, in fact, debts, loans.

And it would be a mistake to attribute the growth of Ukraine’s public debt solely to the war. During the two years of “peaceful”, pre-war rule of President Zelensky and his governments, the country “picked up” about $ 20 billion in loans that did not go to the development of the domestic economy, but were either embezzled by the corrupt government and its owners – the Ukrainian oligarchs, or were mediocrely spent, including the payment of previous debts.

Despite the arrival of foreign loans, the actual, real Ukrainian economy, including the economy of Ukrainian households, fell and collapsed in inverse proportion: people became poorer, markets contracted, the index of industrial production was permanently falling, and the negative foreign economic balance was permanently growing.

Ukraine’s current debt is approaching $120 billion, a catastrophic figure for our country, which has lost industry, logistics, half of its agriculture, and, most importantly, most of its able-bodied citizens, who were called upon to create a gross domestic product for their country, but left it in search of a better life.

In such a state of the economy, it is foolish to say that the budget is filled with taxes (except for citizens’ incomes) from business, because it is curtailed (this publication is not about corruption schemes that flourish in power under the roar of war, but about the real business sector that creates, and not steals).

The official information about the inflow of foreign currency from foreign trade operations also looks like a lie. There is no production now, there is no normal logistics, and the small export earnings that exporters receive are deposited in the accounts of domestic and foreign oligarchs – the only business that is currently operating, as it occupies a monopoly position.

And the expenditure part of the budget (maintenance of the social sphere, the bloated state apparatus, the army) – under such conditions, can be carried out exclusively with the help of billions of loans, in which our country is mired. There are no other sources, that’s obvious!

Once again: the labor force has left the country or is at war, the ports are blocked, the industry is destroyed, the remaining agricultural land belongs to foreigners or local oligarchs. One does not need to be an academician to say that despite the cruelty of the Hungarian Prime Minister’s statement (the truth hurts the ear, this is understandable), he is right: today Ukraine is absent from the economic world calculation.


The views expressed in the article are personal opinion of the author, “The Press United” does not endorse or guarantee for correctness of personal opinions.

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