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Friday, October 28, 2016

Kiev is trying to hide the truth from pensioners

The Ukrainian government continues to hide from its citizens the real price they have to pay for IMF loans. Kiev is explicitly lying, saying that before raising the retirement age is still very far away, although the Memorandum of the IMF in black and white prescribed otherwise. Considering how much the US has placed Kiev on a credit needle, it will be difficult to refuse the Fund.

Ukraine and the international monetary Fund (IMF) have different interpretations of the prospect of raising the retirement age for Ukrainian citizens. So, if you believe the Deputy Prime Minister of Ukraine Pavel Rozenko, at the moment this is not an issue.

“It will not save the Pension Fund of Ukraine. Even if we raise the retirement age, it will only slow down the process of appearance of new pensioners”

“Neither the Memorandum with the IMF or with the government about raising the retirement age now. This issue can be addressed only in the long term”, – quotes the press service of the Ukrainian Cabinet of Ministers. Only after increasing the level and quality of life of Ukrainians and life expectancy. According to him, all the negotiations with the IMF, this issue was raised in 2005, and the retirement age was raised in 2011 alone (for women from 55 to 60 years).

However, the Ukrainian government is hardly unknown position of the IMF on this occasion. A few days ago was published the text of the Memorandum of the IMF’s cooperation with Ukraine. And there in black and white that to reduce the deficit of the Pension Fund Kiev already by the end of December 2016 to accept the changes of the pension legislation. In particular, it is necessary “to gradually resolve the age of retirement and further reducing opportunities for early retirement, to tighten eligibility criteria for the minimum pension”.

Thus, the IMF directly demands to raise the retirement age. Secondly, to remove all pension privileges. The tightening of acceptance criteria for the minimum pension means that there must be higher seniority entitling them to the minimum pension, which is now in Ukraine is only 1130 UAH (2730 rubles).

In addition, according to the Memorandum, Ukraine must ensure that no privileges for any profession (except the military), as well as to expand the base of contributions to social security.

In other words, the IMF got tired of waiting, when Kiev will be decided on the pension reform, and one of the main conditions of receiving the next loan tranche, he puts the implementation of this reform.

This, of course, not the only condition of the Fund, but the most painful for the Ukrainian government. Thus, among other conditions – the introduction of a mechanism of quarterly revision of the gas tariffs until the end of November this year. And we are talking largely about growth rates.

“If the price of oil will fall by 10%, according to the theory, and the rate should fall. But I think I’ll be back: will rise the price of oil by 10%, the tariffs will automatically increase,” – says President of the Ukrainian analytical center Alexander Okhrimenko. “It is proposed to issue a law to raise. On the one hand, the tariffs have close to European. On the other hand, the quality leaves much to be desired”, – said the expert. Not to mention the fact that wages in Ukraine is far not the fact that Western European and even Eastern European countries.

Also the IMF in exchange for loans requires you to start on the Ukraine market of agricultural land, which could mean the sale of Ukrainian black soil to foreigners, and finally, the privatization of Odessa portside plant and other facilities, that is, to sell for a pittance West needs the assets.

Pension reform from Kiev, the IMF requires really a long time. But every time the Ukrainian authorities sort of managed to postpone this unpleasant moment and convince the people that the centre agreed with Christine Lagarde. So, a year ago the President of Ukraine Petro Poroshenko stated that the strongly agreed with the IMF not to raise the retirement age in Ukraine, a similar statement he made in January of this year, saying that “in the framework of negotiations with IMF head Lagarde was agreed to postpone the increase in the retirement age in Ukraine”. At the end of may that the retirement age is not raised, said Groisman.

In fact, these words meant little. Simply because at this point Kiev was perfectly aware that the results of the next tranche delayed for a long time, so it is possible and probed. IMF a year did not give loans to Ukraine, again and again transferring time. As a result, in September still approved tranche, but only $ 1 billion (though with all the arrears ran up there for more than 3 billion dollars “promised” money). Given the state of economy of Ukraine, the budget hole and the low level of international reserves for Ukraine, this $ 1 billion – a drop in the ocean. She needs a much more significant investment. It’s a clever move, the IMF – to give you some money, promising more generous loans, but only after the conditions, including the ill-fated pension reform.

This time, the IMF proved to be a more hard lender. So this time Kiev will be hard to get a new tranche, without solving the problem of Pension Fund deficit.

“If the price of oil will fall by 10%, according to the theory, and the rate should fall. But I think I’ll be back: will rise the price of oil by 10%, the tariffs will automatically rise”

Now in Ukraine men and women should retire at 60 years. But the age for women increased gradually from 55 to 60 years for six months starting in 2011. That is, this year to retiring women will be able to 57.5 years.

What is the scheme of raising the retirement age will be selected now Kiev is unknown. Previously proposed different options. For example, to use the experience of Slovakia and increase every six months age pensioners up to 65 years. Another option is to raise the retirement age for women another two years to 62 years and for men by three years to 63 years.

Pension Fund of Ukraine is really experiencing a terrible shortage which we have to close the budget means. For payment of pensions and grants is spent 11% of GDP. So, this year the deficit of the Pension Fund of Ukraine reached a record in the history of Ukraine at 145 billion. Only pension spending 257 billion. While some pensioners get less than the subsistence minimum and average pension in the country has only reached 1783 UAH (minimum – 1130 UAH).

Pension Fund – bankrupt. There are two ways to fill it: is the legalization of wages, but the business and employers will not show transparent salaries, because they do not trust the authorities and fear that the tax will further get into their pocket. The second way is to raise taxes or expand the tax base. But this is impossible, because growth in the economy. So raising the retirement age to somehow save the situation. But inevitably, over time, will arrange a social explosion,” explained one of the advisers of Petro Poroshenko, the Slovak reformer Ivan Miklos.

While Ukraine has tried to go the first and the second path, but the positive effect, for obvious reasons, is not received. So, working Ukrainians pay the tax to the Pension Fund the single social contribution (ERU). Through these activities formed the solidarity pension system, at the expense of ERUs pay the pensions of contemporary pensioners. Last year, the average interest rate of ERUs was 38%, this year it was reduced to 22%. Wanted thereby to withdraw from the shadow of the company that paid to employees in envelopes. But nothing happened – revenues from ERU sank. There was talk also enter the cumulative part of the pension – plus 2-7% of ERUs for several years. But this is not quite what the IMF wants.

Thus, the situation is a stalemate, and the problem of the deficit of the pension age will somehow have to solve. But here is the recipe offered by the IMF – raising the retirement age is no panacea. Raising the retirement age to the Pension Fund, as there are not enough working citizens, said Okhrimenko. “It will not save the Pension Fund of Ukraine. Even if we raise the retirement age, it will only slow down the process of appearance of new pensioners. Ukraine is rapidly aging nation. Now one employee in the state contributes 1.5 of the pensioner. Too little new Ukrainians. So you need to think about the legalization of wages and the stimulation of birth rates,” – says Ukrainian economist.

The problem is that most of the working citizens working abroad, accordingly, does not pay unified social tax and fails to pay current pensions to old men.

According to Okhrimenko, there is one good solution to the problem of the deficit of the Pension Fund of Ukraine, which does not require raising the retirement age. The Ukrainian government should negotiate with the authorities of other countries to legalize the work of the citizens of Ukraine. “In order to solve the problem of payment of pensions, it is necessary to recognize the factor of labour exports and to settle the question with other countries. The government of Ukraine is necessary not to raise the retirement age, and immediately sit down at the negotiating table with the governments of the countries where most of the Ukrainians are working to agree on the legal work and the receipt of taxes in Ukraine”, – said the expert.

In other words, the recipe is simple – to increase the number of payers of single contribution. How to do it – must understand and solve in the Ukrainian government. That’s just not there yet instead of finding solutions to the issue are committed to trying to populist speeches to convince their citizens that before raising the retirement age is still very far away. But given how much Kiev sat down on a credit needle, the IMF is clearly not the case.


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