1. www.debaty.org
INCREASING GOVERNMENT SPENDING WILL PREVENT THE 2ND WAVE OF CRISIS IN UKRAINE
PUBLIC DEBATE BRIEF
February 28, 2012
Teacher’s House, Kyiv, Ukraine
The debate on the motion “Increasing government spending will prevent the 2nd wave of crisis in Ukraine” opened the
season of public debates in 2012. The event was held by the Foundation of Effective Governance in partnership with Britain-
based Intelligence Squared. The Ukrainian journalist and TV anchor Mustafa Nayem moderated the debate.
As economies face the looming second wave of the global crisis, experts argue which kind of a budget policy can mitigate
the consequences of this crisis. On one hand, an increase in public spending will boost domestic demand and encourage the
economic growth, but on the other, budget cuts today will help to accumulate and preserve the resources that the country
will need to fight the consequences of the crisis.
Advocates for the motion emphasized the ineffectiveness of austerity. To this end, they referred to the examples of Great
Britain, Spain, Ireland and other countries which exercised strict budget policy and financial control, yet failed to prevent the
crisis.
Their opponents agreed that the influx of budget money in infrastructure and investments may boost the economy.
However, when the country heavily suffers from a budget deficit, this financing is only possible by increasing the public debt,
which, in turn, increases macroeconomic risks. This is while Ukraine already has problems with an access to international
capital markets.
During the discussion, the audience remained almost entirely truthful to their initial opinion. The panel against the motion
won the vote with an 8% increase, from 61% at the beginning of the debate to 69% at the end.
Public debates provide an opportunity to discuss the most topical issues of Ukraine’s economy. The project’s goals are to help
the public develop an informed view on the country’s economic situation and to facilitate a culture of constructive
communication about its most important problems.
Speakers FOR the motion Speakers AGAINST the motion
Oleksandr Suhonyako György Surányi
President of the Association Head of Central and Eastern Europe
of Ukrainian Banks Region for Intesa Sanpaolo Group,
Chairman of the Board of CIB, PBZ, VUB,
Former President of the National Bank of
Hungary
Mehdi Hasan Viktor Pynzenyk
Senior Editor (Politics) at the New Statesman, Former First Vice-Prime Minister of
United Kingdom Ukraine, Former Minister of Finance

2. Key Statements
Oleksandr Suhonyako: “The increase of public spending per se György Surányi: “Nobody is willing to lend money to Ukraine
cannot prevent the economic crisis or help the country combat until its fiscal situation is sustainable. Ukrainian households do
this crisis. The problem can only be solved with an entire set of not want to place their money at the government’s disposal
economic tools. The main source of filling in the budget is our either. Under these circumstances, the best advice is to
brains and hands. That is why our main concern should be that improve the economy’s solvency and instead of levying new
this source is never exhausted”. taxes, ensure the effective management of the existing
financial resources”.
Mehdi Hasan: “We now have the results of the Viktor Pynzenyk: “Speaking of public spending, we should not
austerity experiment conducted by western European overlook one ‘small’ thing: where to get the money. In our
governments over the past two years, which slashed public case, we can only get the money by increasing the public debt.
spending to try and rein in soaring budget deficits: growth has This is while during the last four years Ukraine has already
ground to a halt, consumer confidence continues to plummet increased its public debt five times. Moreover, we are
and unemployment has hit record levels. It makes no economic threatened by a sovereign debt which builds up when the
sense to reduce domestic demand. Ukraine’s leaders should be economy spends more than it earns. Consequently, it is weird
trying to boost demand in order to kickstart growth and create to call for more spending when almost all of our problems
new jobs”. come from spending too much”.
Q&A Session with the Audience
Q: “What additional sources can cover the increased public spending?”
A: Oleksandr Suhonyako: “Our fiscal policy should meet the goal we set, i.e. an expansion of the domestic market. This includes
joined projects of government and business, both local and foreign. The main thing is to earn the trust. Then we will have a
favorable investment climate”.
Q: “Don’t you think that the government should pay more attention to the quality and effectiveness of public spending?”
A: Oleksandr Suhonyako: “We say that public spending should go for the renewal of our economy. There should be a direct
relationship between public spending and the economic growth. We must be prepared for structural changes in our economy.
Tomorrow we may face a crisis triggered by sovereign debts in banking system or metallurgy. That is why we must be ready to
increase the domestic demand today (or better yesterday!)”.
Q: “This year budget spending has increased compared to the previous year. There is no secret that the government plans to cover
the additional amount by issuing state bonds. How these bonds may affect the liquid assets of the banking system?”
A: Viktor Pynzenyk: “Last domestic auction has failed. The government could not borrow a single hryvnia. That is why it invents
different types of bonds, but this clearly is a mistake”.
A: Oleksandr Suhonyako: “If anyone in the Czech Republic had issued bonds in Euro, not in krona, this would have been
tantamount to a capital crime. Yet in Ukraine such an initiative is welcomed. Hard currency bonds are madness”.
Q: “Is the following statement true: to fend off the second wave of the financial crisis in Ukraine, the government needs to
increase spending on the projects that are enticing from the political and investment points of view?”
A: Viktor Pynzenyk: “Investments are not the government’s task. If we speak of infrastructure, then yes, this is the element of a
favorable business environment. If we speak of industrial investments, then this is not what the government should spend its
budget on. The government merely has to create the conditions for such investments”.
Voting Results Increasing government spending will prevent the 2nd wave
of crisis in Ukraine
Further information and the video version of the
debates are available on:
www.debaty.org and www.feg.org.ua
FEG, 8 Illinska Str., 8th Entrance, 5th Floor
Kyiv, 04070, Ukraine
tel: +380 44 501 41 00
feg@feg.org.ua