Worse than death: an interview with Timofey Milovanov about the possible consequences of quarantine

Losses from quarantine and coronaries range of 53-54 billion dollars, according to Milovanov

Recently, the Kyiv school of Economics has conducted a study on how many Ukrainians might get sick and die from coronavirus infection. In the first part of an interview with “Today,” the President of the Kyiv school of Economics Tymofiy mylovanov told, many Ukrainians may die due to the pandemic and why soon you may need a second rigid quarantine. The second part of the interview – about the economic consequences of quarantine for the country and how Ukraine will survive the crisis better than developed countries.

“People and businesses are forced to rely on themselves in terms of a survival in the conditions of crisis”

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– If we consider economies as Ukraine suffered from the coronavirus in the other?

– Ukraine tried to conduct a correct economic policy, in the same way, as do all developed countries. All developed countries provide an economic stimulus package of the order of 5-10% of GDP. We do the same. The Ukraine’s budget deficit is expected to reach 300 billion, might be a little more, and it’s 7-8% of GDP. In absolute numbers it is less per person than in developed countries, but in proportion to the size of the economy is similar figures. The problem is not so much the level of support allocated in the budget, but in its development. For example, there is a Fund coronavirus 65 billion, but it is not used fully. Used only a small portion of it. This means that some program has developed, but has not fulfilled in full.

Take a loan program “5-7-9%” — only 700 people, businesses used on the level of the whole country. This is a very small percentage. That is, the program is, but it is working inefficiently. So somewhere we do not modify the level of actual assistance to business and people.

There are structural problems. For example, many people are working as Fapi (PE, physical persons-entrepreneurs. – Ed.), and they have no experience, they come to get money to the unemployed and pay them 1000 a month although they had a much larger income who lost. This is a problem, the disease of the state – the state is not able to adapt quickly and to use the mechanisms that are used by other countries. For example, in the United States, the accounts listed help. We could do the same. This is difficult to do in practice, but possible. All the people applying online, identifitseerida using tax numbers. But again, Bank account is not at all. In Kiev, of course, most are, but not all live in Kiev or the cities. In the villages sometimes, but “Ukrposhta”, there is nothing, there is the farm where it is not. And these people need support more than in the cities. I like how worked the volunteers who organized the delivery of food and medicine for the elderly. But we need a systematic approach, not at critical moments in society jerks were combined and made heroic deeds. It’s very emotional and shows the quality of society, but need more systematic work of the state. This crisis shows the lack of state institutions and serious relation to the development of the state, which in critical moments, the state can not respond quickly to calls. In fact, people and businesses are forced to rely on themselves in terms of a survival in the conditions of crisis.

Losses from quarantine are 53-54 billion dollars

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– If to compare countries that have imposed quarantine and which have not introduced restrictions, such as Ukraine and Belarus, in economic terms, who will be in a better position?

– Each country is special with the point of view of the economy. Especially if we compare Ukraine with Belarus, Poland and Russia. In each different model of the economy, and quarantine could affect. In Belarus, the command economy, but they decided to pretend that nothing is happening, there is no problem. This shows the relationship to the person. In democratic countries, the human cost is high. And we have a democratic country — it is clearly visible, and I’m proud of it. In the first place immediately put a person to the people do not die, the value of human life is high, therefore, imposed quarantine, despite the economic consequences. In fact, the economic consequences are, and they are measured in human lives. If people lost income and jobs due to quarantine, then it may not be enough money for medicine for children or for parents. Or he has not enough money for food, if the family is poor. This in the long run affect life expectancy, for its quality. If we count not the number of people who will die before the end of the year, and the number of years and the quality of these life years, we will see that the quarantine is also has people. And it is less secured because it is critical to make money.

In the Kyiv school of Economics we calculated the consequences of the crisis. Until we see that losses reach 53-54 billion. quarantine and economic crisis. Take into account not only current year but also for subsequent — how much lower is GDP and how it affects the size of the economy in all subsequent years. You can calculate how many people would have died without quarantine and evaluate them in the economic sense — the cost of a year of human life, how much he earns and so on. We get that quarantine rescues in the worst, black scenario the same 53-54 billion. But we are in the “yellow” scenario, with moderate seasonality. So the quarantine must continue to be adaptive and tough only in critical cases to avoid flash. Because then the economic consequences will be worse than the consequences of the death. For example, the year we die is approximately 600 thousand people. At the current scenario, in the worst scenario in terms of quarantine, die another 7.5 thousand people — it’s a little more than 1% of the total number of deaths. In the worst scenario — 120 thousand deaths from the coronavirus, is 20%. And how much we can lose if we stop the entire economy if a third of people will lose their jobs? So I’m on the side of careful quarantine, so as not to stop the economy. Because if it is not the economy, then people will not be later.

– The crisis, which was provoked by a coronavirus, called coronariana. What are the features of this economic crisis that brought the virus?

– First of all, he has hit the real sector, labor market. People can’t work together, because the virus is spread through contact. It hits the people who can’t work remotely, and hits the demand for goods and services. This crisis is unusual in that it came not from the financial system, not with the price of commodities, namely labor market. So we need to support people who are working, and a business that may fail.

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Interestingly, there is no financial crisis. Usually if there is an economic or financial crisis, off course, on the ceiling climbing inflation, rising rates, banks start to fall, people lose their savings. This time the financial system has responded well. The banking system and the national Bank of Ukraine worked well, and this, in particular, the merit of painful reforms undertaken early in the course of which banks are required or closed, or to become effective. But in the real sector of many problems.

For us this crisis is the biggest since the Second world war

Some economists called this crisis the worst since the Second world war. Do you agree with this statement?

– Still need to watch and see how things will recover. But really, the first response and preliminary indicators more difficult than in the 2008 crisis. For example, the USA was the leader of the crisis of that period. Then the crisis spread to Europe. We see that there is more unemployment and falling demand. This is a very dangerous symptoms. Ukraine’s economy slowed to 5-8% (the forecast decline in GDP at the end of the year). But we’ve played more in 2014, and in the ‘ 90s. If unemployment will rise from 1.5 million to 2.5 million, it will be a big increase, but less than in developed countries. The decline in GDP for the first quarter of 1.2%, while in Europe an average of 2.7%. We see that our economy is less than the falls. So for us this crisis is the biggest since the Second world war. But there is a risk that we accumulate problems. For example, that companies don’t fire people and then go bankrupt. In developed countries, quickly fired, and we all saw it on the economy. In Ukraine may be that companies are not firing, especially state-owned enterprises, but then get fired, and these problems we will see in six months or a year. I hope this will not happen and our economy will respond better to a crisis. For us this crisis is painful, but not as much as in 2014-2015-m or in 2008 and in the ‘ 90s.

– We have a significant contribution to the economy make migrant workers. How they will be affected by the crisis?

– While it is difficult to foresee. But during the quarantine, has returned to Ukraine not so much as said the politicians and the media wrote. Returned several hundred thousand people from a 2-3 million — approximately 15% of migrant workers. The situation depends on their position in the countries where they work.

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– Ukraine and the IMF agreed on a cooperation program in the amount of 5 billion dollars is 134 billion. This money will help to cope with consequences of the pandemic coronavirus?

The amount of the first tranche is not that big — a $ 2 billion, or 60 billion UAH, and we have a budget deficit of 300 billion UAH. More importantly, this program provides access to funding other programs. How it works in practice? Other donors and investors, creditors do not give money, does not give the IMF because they don’t want to risk it. IMF is such a auditor-certificate authority. After the Fund gives money, opens up access to other funding. Therefore, the budget deficit will be financed. The IMF program we need, and it’s good that she signed. There is a lot of speculation that in this way Ukraine was under external control. They say that the IMF is something requires of us. In fact, if you look at the Memorandum, that there is nothing special.

Is in the media a lot of twisted information on energy rates, Supervisory boards. But if you look more, if we bring the tariffs to the market, then the price will fall. Similarly, on the Supervisory boards of the IMF requests just to comply with the terms of the existing laws and, in fact, to avoid political corruption intervention in the Affairs of SOEs. There is a requirement of the IMF on tax and customs. There is a situation that every head of the regional branch is a legal entity and its accounts, which are difficult to control. But many use it to show the West an enemy. In fact, our enemy in the East – Russia, and we do too little are his enemy. If Ukraine wants program better than from the IMF, let’s write better. But we see that the IMF is impossible to write a quality program, and the program of the government — does not work. But the IMF program is a stabilizing factor. It is very short this time (18 months), it means that the Foundation doesn’t trust us, but gives the money to see the results after the crisis.

About a government program to stimulate the economy

At the end of may the Cabinet of Ministers has published a stimulus program to overcome the effects of the quarantine. What are the points you agree and what weaknesses do you see?

– There are few specifics. For example, the phrase “support the industry”, but it doesn’t say what tools. Increased exports are also not written, which markets and some commodity items. It is impossible to increase exports just in the abstract. Kyiv school of Economics did a study on the most promising markets and positions. For example, Ukraine may increase export of engineering products, measuring and computing devices, optics. According to our estimates, 7% of GDP — is the amount of additional exports that we can have if we focus on the TOP 10 countries and TOP 10 positions. This specificity in the government’s program no. And it is better that the program has been said about the problems they “cure”. To stimulate the economy, you have to understand where it needs to be stimulated. If we are treating the symptoms, we do not treat the disease.

– The program to stimulate the economy is said about the creation of 500 thousand jobs. How is it now really?

The job of the state is not to create jobs but to create the conditions for job creation. There was even painted, will create jobs and salaries for 6,000 to 7,000 UAH. It’s frivolous and even disrespect for society to say that we will create 500 thousand jobs and will pay 6000 UAH. I’d like to see the program, which explains what kind of skills is not enough Ukrainians, as the state will create a modern program of vocational education, adult education. Or how there will be changes in education so that people coming out of universities are ready for the job market. We see that there are staff shortages among competing companies. There is a problem with the fact that Ukrainians can and know and what you need to be able to be competitive with the Europeans and the Chinese. This is a very deep problem. And where we want to create jobs? In cities or villages? If in the villages, how? Because rural development is not the development of agriculture, are two different things. Live in villages 13 million Ukrainians, and unemployment is a big problem in the village.

The NBU expects that Ukraine is waiting for a quick V-shaped recovery. What are your predictions for the second half and 2021?

– We’ll see. The majority of economists agrees that should start the economic recovery. But it is provided that the second wave incidence will lead back to the rigid quarantine and the second blow to the economy.