National Technical University of Ukraine “Kiev Polytechnic Institute”, email@example.com
In view of recent trends in global development, the main impendence of sustainable development (1), apart from the ecological problems, is the instability of financial systems. The analysis of the causes and consequences of the recent global financial crisis of 2008-2009 has provoked the need for consolidated and extensive assessment, and monitoring of macroeconomic and financial sector developments. The fragmentation of financial assessment and unavailability of developed tools that would encompass macro-financial linkages for analyzing the health, soundness and vulnerabilities of the financial system as a whole, resulted in ineffective and untimely policy decisions, and inability of policy-makers to head-off or prevent the financial crisis. For example, in USA, policy-makers didn’t contrast the rising risks in the shadow financial sector with the risks of the economy-wide trends in credit growth, leverage and house prices, and therefore, could not understand their nature and possible consequences. If policy makers could adopt a broader view by taking into account not only macroeconomic indicators, but also aggregated micro-prudential indicators, their policy responses/decisions would have been based on identified vulnerabilities and risks to the stability of the whole financial system (whether macroeconomic, institutional, structural, supervisory), and so, would have been more effective in treating them.
A way of analyzing the health, risks and vulnerabilities of a financial system is to use macro-prudential analysis, the framework for which has been developed by the IMF in partnership with World Bank and various national authorities (2). This framework is used as a major building block in its ongoing efforts in Financial Sector Assessment, specifically in the Framework for Assessment of Financial Stability.
Macro-prudential analysis identifies current vulnerabilities of the financial system through the use of Financial Soundness Indicators (FSIs) in combination with macroeconomic and financial market data, and uses stress testing and scenario analysis to determine financial system’s sensitivity to shocks.
This research focuses on the use of FSIs, their macro-financial linkages, as well as policy implications.
FSIs are indicators of the current health and soundness of the financial institutions in a country, as well as of their corporate and household counterparts. They show the financial system’s capacity to absorb the consequences of shocks. They are unique because they combine aggregated micro-prudential indicators, or indicators of the health of individual financial institutions, into macro-prudential indicators, which allow authorities to identify vulnerabilities and risks to the whole financial system at their early stages. By combining the analysis of FSIs and macroeconomic indicators, we able to not only better comprehend the macro-financial linkages, but also identify the possibility of a crises, if both groups of indicators point to vulnerabilities.
Several examples of macro-financial linkages include: access to financing by private sector for investment; wealth effect from bank deposits at risk in a crisis; role of banking system in monetary policy transmission.
The next step is to design effective policy responses, which should be in accordance with the vulnerabilities they are aimed to treat. Generally, macroeconomic policies should be used to address inflation, credit booms, and the like, while, prudential policies would be sufficient for treating structural and supervisory vulnerabilities. However, to achieve the desired result vulnerabilities of the financial system should be addressed with a combination of both prudential and macroeconomic policies, or their adjustments. In order to find the right combination of prudential and macroeconomic policies aimed at addressing various vulnerabilities and stabilization of the financial system, quantitative methods.
Overall, macro-prudential analysis, or the surveillance and analysis of the soundness of financial system, is a basis for taking action to prevent crises by minimizing risks at early stages. By ensuring financial stability and orderly financial development, authorities will be able to focus their attention and efforts on major threats to sustainable development and future safety and welfare of humankind, such as global warming, the spread of diseases, natural disasters and infant mortality to name a few.
1. Аналіз сталого розвитку – глобальний і регіональний контексти. Ч. 1. Глобальний аналіз якості та безпеки життя людей. / Міжнар. Рада з науки (ICSU) [та ін.] ; наук. кер. М. З. Згуровський. – К.: НТУУ «КПІ», 2009. – 280 с.
2. Owen Evans, Alfredo M. Leone, Mahinder Gill, Paul Hilbers. Macroprudential Indicators of Financial System Soundness. IMF Occasional Paper No. 192. - Washington, DC: International Monetary Fund. - April 8, 2000. – pg. 54.
3. IMF (International Monetary Fund), World Bank. Financial Sector Assessment: a Handbook. –
Washington, DC: International Monetary Fund. - September 29, 2005. Available at: http://www.imf.org/external/pubs/ft/fsa/eng/index.htm
It is very important for Ukraine as transitional economy country to consider foreign investments in context of structural change and economic growth. Officially defined priorities, which should be solved by foreign investment, are :
- Structural reform of the economy;
- Technological renewal of production;
- Production of consumer goods;
- Overcoming the country's dependence on imports.
But it should be noted that the objectives of the foreign investors, who act on our nationalmarket, very often clash with the development program of domestic economic. Thus, in the whole economic structure they are primarily interested in raw materials, metals, coal, chemicals, etc.. Foreign investors are mainly Interested in companies that have certain technological advantages and prospects, as well as scientific and technical potential. In other words, foreign companies pay attention to the possibility of simplified access to the cheap market of raw materials’, scientific and technological bases and skilled workforce of Ukraine.
When Ukrainian companies want to get access to the modern technologies using foreign direct investments, international companies implement technologies that have already passed half of their life-cycle in global markets and thus they are not competitive. The lack of Ukrainian market consumers’ exactingness gives opportunity to the outdated and unprofitable foreign market products to prolong their life-cycle. Thus, competitive world global corporations orientate on the global export strategies, but not on the development of Ukrainian goods’ production. In addition, high investment risk in Ukraine leads to the lack of foreign entrepreneurs’ confidence. Those foreign investors who have already come to our domestic market, do not hurry to solve problems and tasks of their Ukrainian partners. Anyway, analysis of investment activity in recent years shows it’s positive dynamics, the expansion of it’s scale, species and areas.
As for the total foreign direct investments into Ukraine, on October 1, 2010., it was $ 42511.9 million. That’s 6.4% higher than investments at the same period of the previous year .
The investments came from 124 countries. Top ten investing countries, which make about 82% of total direct investment, are: Cyprus - $ 9579.1 mln., Germany - $ 7005.7 mln., Netherlands - $ 4082.7 mln., Russian Federation - $ 2956.3 mln., Austria - $ 2667.3 mln., United Kingdom - $ 2284.7 mln., France - $ 1751.6 mln., Sweden - $ 1732.2 mln ., British Virgin Islands - $ 1425.5 mln. and the United States - $ 1218.4 mln. .
The growth of foreign capital was observed in: enterprises which provide financial activities - $ 1684.3 mln., trade, repairing of motor vehicles, household goods and personal consumption - $ 237.6 mln., real estate transactions, leasing, engineering and services for entrepreneurs - $ 215.7 mln. Total amount of loans received by Ukrainian enterprises from direct investors was $ 5912.5 mln. Total volume of foreign direct investment, taking into consideration loan capital, was $ 48424.4 mln. on October 1, 2010 .
So as the conclusion it should be noted that foreign investors are mostly interested in projects, which are aimed on a short-term prospect and investments’ volume return, and also to gain strategic engineering and chemical industries’ markets. Because of the development’s dynamism, investment process’ statistics are “getting old" very quickly. Therefore a full economic analysis of investment activity is very complicated. However, taking in consideration all those facts, that were mentioned above, we can mark certain tendencies which qualitatively characterize the development of foreign investments into Ukrainian companies [2, 4]:
1. The largest amount of investments are made by the partners from industrialized countries, the largest number of investment partners come from the developing countries and gradually increase of the CIS countries’ investment partners share;