Deja Vu Yulia?

KIEV, Ukraine -- It’s certainly an interesting approach to economics. Engage in politically destructive behavior, promise sweeping social payments in the subsequent elections, and then deal with the consequences later.

Yulia Tymoshenko
The direct effect of last year’s political crisis is inflation unacceptable for a country aspiring towards European standards.

Economists attributed last year’s 16.6 percent surge, the largest in seven years, directly to the political crisis that plagued the country the whole year.

Whenever elections roll around, producers and sellers raise prices in anticipation of campaign promises of generous social payments, whether it’s $5,000 for every second child or $200 for every citizen who lost bank deposits.

To keep bread prices down, last year’s government of Viktor Yanukovych tried something hardly innovative, imposing grain export quotas.

Now the government Yulia Tymoshenko, returning as prime minister under the premise of abandoning her 2005 market manipulation attempts, is aping the Party of Regions quotas, blocking exports on sunflower seed oil.

Prices for sunflower oil were among those to rise the steepest, more than doubling last year, long before Tymoshenko declared she would return $4 billion in bank deposits lost in the Soivet break-up.

Economists differ over whether these payments caused inflation to skyrocket 2.9 percent in January, but just the perception that more money is flooding the Ukrainian market is enough to do so, and the Tymoshenko government should have been better prepared.

Moreover, the Tymoshenko government should forewarn the business community whenever it thinks non-market approaches are necessary.

Export quotas are a tool of most countries, but they should be applied in a timely, transparent manner that allows market players to brace for the repercussions. They should also be within reasonable proportions, so as not to cause bigger problems than originally anticipated.

Advanced preparation, and even consultation, would also allow for the affected industry players to offer suggestions in dealing with an economic situation to avert non-market measures.

Safeguarding against inflation should be a consistent part of government policy. Putting out fires with export quotas offers no long-term solution.

Source: Kyiv Post