If We Default, We Will Be Left With Debt And No Money

The show “What’s happening to the economy?” on Hromadske Radio. Presenters: Yuliia Mincheva, VoxUkraine, and Andriy Fedotov, Center for Economic Strategy

Authors:

Yuliia Mincheva, Andriy Fedotov, Andriy Kyrylenko

Andriy Kyrylenko, professor at the University of Cambridge, aired on “What’s happening to the economy?” talking about what impact the coronavirus had on the economy and why Britain was not introducing hard quarantine. He warns that if Ukraine defaults, it will remain in debt and without the possibility of getting extra money.

Yuliia Mincheva: How is Britain fighting the coronavirus epidemic?

Andriy Kyrylenko: Two years ago, the BBC filmed a  documentary about a pandemic where it was called Britain’s biggest challenge. The film is based on a simulation where a “zero” patient infects two others, those in turn infect two more, and so on and so forth. To trace the virus’s “path”, Britain developed a special phone application that showed the movement of citizens and helped understand how many people could be infected by a sick person.

The model has now been adjusted for the coronavirus and new parameters have been added based on available information about the effects of the disease on different age groups and different sexes. This new data has been used to review UK policy on fighting the coronavirus.

The model helps understand how to best respond to a pandemic when many people contract disease at the same time and the medical system’s capacity is not enough to treat all.

One of the findings is that if the pandemic comes in waves, throwing all your medical staff to combat the first wave  may leave you disarmed before the next ones, because 30-40% of the doctors will contract disease and spend 2-3 weeks in quarantine. There is information that the last (but not the very last) mighty  wave of the epidemic will take place in the summer of 2021, so measures need to be planned not a week or two but months ahead.

In Britain, the opinion is that free people armed with sufficient information will be able to protect themselves and society better than any authoritarian measure. The simulation shows that if you just wash your hands and – if possible – keep yourself at a distance of 1.5-2 meters from other people, then the number of infected people at the end of the whole model is less by 25-30%. Just as a result of individual activities.

Yuliia Mincheva: Does Britain have plans to better protect the groups that are the most vulnerable to the coronavirus?

Andriy Kyrylenko:  Yes, the latest measures are meant to do that. If you are at risk, you are asked not to leave your house at all.

Unfortunately, during the pandemic, there are many patients and not enough ventilators, and the doctors have to choose whom to rescue and whom not to.

Yuliia Mincheva: What economic measures will help overcome the crisis caused by the pandemic? When everyone is in need of money, where will it come from?

Andriy Kyrylenko:  It seems to me that Zelenskyi’s idea of negotiating with the oligarchs misses the point. What are they interested in?

In saving their business in the first place. Therefore, it is good for them to meet with someone who can use taxpayers’ money to their advantage.

On the other hand, the oligarchs’ money would not be sufficient to meet the country’s needs. Who has this money? The international community does. Ukraine needs to keep close to the international funds and knowledge to understand what the world is going to do. The IMF recently said  it would spend $ 1 trillion to help fight the coronavirus. Knowledge about the virus is being collected by the World Health Organization.

Internal resources could be used for smaller things like creating a mobile application for Ukrainians. Everybody lives in their smartphones anyway, so make it useful and make information available like “don’t go there, there may be a risk of infection there”.

Andriy Fedotov: Where can the crisis on the stock exchanges lead us? How is the situation different from the 2008 crisis?

Andriy Kyrylenko: We are a small country with an open economy exporting raw materials that is not able to set the tone in the financial markets.  

The markets are now responding to information that they previously had no access to or ignored, and this is somewhat of a test for them. Policymakers, central bankers, and finance ministers are guided by market behavior when developing an action plan.

Both the financial and macroeconomic crises are already here. How long they will last, who they will hit, what will be the reaction is not clear yet. But, surely, the situation requires a change in behavior and those who do not see it are naive.

Andriy Fedotov: Due to the economic downturn and closed borders, it is more difficult for the debtor countries to repay debt. Is it now possible to speak of a global arrangement to restructure their debt?

Andriy Kyrylenko: I think it’s quite real. We’ve known the Paris and London Clubs. I think a new club will emerge since the coronavirus and the crisis following it is a global force majeure with no one to blame. And the countries did not get into it voluntarily. Now both creditors and debtors need to understand how to handle it.

But it is important for Ukraine to carry out restructuring within a certain club by the rules rather than just declaring that “we did not have enough money”. If we declare default on our own, we will be left with debt and no money.

Yuliia Mincheva: How will the pandemic affect Brexit?

Andriy Kyrylenko: Britain’s focus has shifted from Brexit, because one now has to think of how to save as many people as possible using internal and external resources.

After this pandemic is over, the world will never be the same. People are likely to change their mind about what kind of government they need. If your government protects you and is trusted then its approach worked, if not, it could end up like after World War I. The empires and kings disappeared because people started to think about why they should have them if they were not able to protect them.

Andriy Fedotov: What should Ukraine do to support businesses and people in the medium term?

Andriy Kyrylenko: I would like to point out the positive aspects that make it easier for Ukraine to cope with the crisis.

First of all, the banking system in Ukraine has been very well purged in recent years. Now it has no problems and has reserves.

Everything that works should continue to work.

Due to the fact that Ukrainians had the Maidan and are living in a situation of war, quarantine and the epidemic may not be such a great stress for them. I expect less panic, people should be able to get their act together. In this sense the Maidan provided a useful experience. Other countries do not have such experience. I think it is a little easier for Ukrainians from a psychological point of view. Maybe Ukrainians understand how to deal with shocks.

What should be done now? People should be given maximum transparency and more information. I believe that free people will always do more good for the world than those who are restricted. Everyone has to take a look at the future through the lens of the present – a politician, a scholar, a businessman or a public figure – and answer the question of whether you are now doing something, so that at least things won’t get worse in the future. That’s a lot already.

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