REUTERS
The best alternative for Ukraine in the long term (3-5 years) is complete financial liberalization for integration in the global economic system and attraction of investment, but it needs a long and complex preparation, according to a study by the Center for Economic Strategy titled "Withdrawal of exchange restrictions and liberalization of capital movements: how and when?," an UNIAN correspondent has reported.
The authors of a study proposed an integrated approach to the liberalization of capital movement, which provides for a gradual lifting of restrictions on different types of capital flows. In particular, at the initial stage, the experts propose to abolish restrictions and create a favorable environment for foreign direct investment and foreign trade operations; at the second stage - to allow free flow of portfolio equity investment and liberalize outflows of foreign direct investment; at the third stage - to liberalize short-term capital flows and only in the last turn - to remove restrictions on foreign investment by residents.
Read alsoFT: Ukraine’s Finance Minister urges donors to double commitmentThe study warns that the implementation of all stages of liberalization requires a number of reforms in order to create a favorable institutional environment (strengthening the role of financial markets, improvement of prudential regulation and supervision for the introduction of the appropriate level of risk management among market participants), otherwise the domestic economy cannot absorb additional liquidity, leading to the formation of "bubbles" in real estate, land, consumer loans and provoke crises.
The experts remind that, according to the recommendations of the International Monetary Fund, the preconditions for the lifting of restrictions on capital flows are stable economic growth, low inflation and high flexibility of the exchange rate, high level of international reserves, high share of foreign direct investment and equity in capital inflows, sufficient level of financial sector development, high standards of prudential supervision and regulation, positive perception of the quality of governance and institutions in the country by investors, and economic openness in foreign relations.