NATIONAL BANK OF UKRAINE Annual Report 2002 Ladies and Gentlemen! My Esteemed Colleagues! In 2002, the NBU continued to pursue its policy devel- oped during 11 years of its existence. The Bank persistently worked in all the areas, strengthening the banking system of Ukraine and thus its macroeconomic stability. The actions taken by the NBU yielded positive results, which we are proud of and which give hopes for the future. After all, the hryvnia retained its internal and external sta- bility and inflation remained suppressed. I would like to note that those two factors alone animated the investment activity of enterprises and afforded opportunities for inter- nal lending. The banking system itself expanded: banks enlarged the scope of their activities, augmented their capital, diver- sified operations, and enhanced the range of their services. In short, in 2002, Ukrainian banks became more reliable. That is why it is safe to say that the economic growth in Ukraine is chiefly attributable to the positive develop- ment of the banking system. It is a pleasure for me to note that in the first half of 2003 all the positive trends of the previous year were markedly intensified. Consequently, the economic growth in Ukraine will certainly persist, which will advance the state system of Ukraine and improve the well-being of its people. We are sanguine about the future since today the NBU has the necessary organizational, intellectual and technical potential for further development and successful perform- ance of the banking sector. Best regards, Governor of the National Bank of Ukraine Sergiy Tigipko COUNCIL OF THE NATIONAL BANK OF UKRAINE Chairman of the Council – adviser to the President of Ukraine Anatolii Halchynskyi Head of the Budget Committee of the Verkhovna Rada of Ukraine, Deputy Chairman of the Council of Member of the Finance and Banking the National Bank of Ukraine Committee of the Verkhovna Rada of Ukraine Petro Poroshenko Ernest Haliev Ukrainian Ambassador to Great Britain First Deputy Head of the Pensioners, Veterans and Invalids Committee Ihor Mitiukov of the Verkhovna Rada of Ukraine Valerii Alioshyn Member of the Law Policy Committee of the Verkhovna Rada of Ukraine Serhii Osyka Head of the Finance and Banking Committee of the Verkhovna Rada of Ukraine Serhii Buriak Minister of Economy and European Integration of Ukraine Valerii Khoroshkovskyi Member of the Pensioners, Veterans and Invalids Committee of the Verkhovna Rada of Ukraine Ihor Pluzhnykov Member of the Budget Committee of the Verkhovna Rada of Ukraine Ihor Sharov Adviser to the President of Ukraine Ihor Yushko Head of the Chernihiv Regional State Administration Member of the Finance and Mykola Butko Banking Committee of the Verkhovna Rada of Ukraine Fedir Shpyh Governor of the National Bank Member of the Law Policy Committee of Ukraine of the Verkhovna Rada of Ukraine Sergiy Tigipko Yulia Tymoshenko BOARD OF THE NATIONAL BANK OF UKRAINE Governor of the National Bank of Ukraine Sergiy Tigipko First Deputy Governor Deputy Governor Arseniy Yatsenyuk Olexander Shlapak Deputy Governor Deputy Governor Volodymyr Krotiuk Pavlo Senysch Director of the Foreign Director of the Monetary Director of the Accounting Director of the General Exchange Regulation Policy Department Department Department of Banking Department Natalia Hrebenyk Vira Rychakivska Supervision Serhii Yaremenko Vadym Pushkariev Head of the NBU Main Director of the Financial Director of the Legal Director of the Information Branch for the City of Kyiv Department Department Technology Department and Kyiv Region Olha Kandybka Vasyl Pasichnyk Anatolii Savchenko Anatolii Stepanenko Head of the NBU Main Director of the Personnel Branch for the Department Autonomous Republic of Ihor Ivaniuk the Crimea Anatolii Burdiugov STRUCTURE OF THE NATIONAL BANK OF UKRAINE Governor of the National Bank of Ukraine Sergiy Tigipko Governor’s Personnel Department Secretariat First Deputy Governor Arseniy Yatsenyuk Office of Public and Mass Media NBU Educational Relations Institutions Monetary Policy Department Office for Banking Sector Development – NBU Training Centre Foreign Exchange Group of Economic Regulation Advisers to the Department Governor Central Library Economic Office for Banking Department Activities Analysis Financial Department Risk Management Production Unit Engineering and Maintenance Department Department of Economic Analysis, Research and Forecasting NBU Council Office NBU Maintenance Administration Office State Treasury Audit Department NBU Banknote Printing and Minting Project Monitoring Works Unit for International Bank Security Credit Lines Department NBU Banknote Paper Mill Editorial Board of Department of NBU Periodicals External Economic Relations NBU Scientific Research Centre Deputy Governor Deputy Governor Deputy Governor Olexander Shlapak Volodymyr Krotiuk Pavlo Senysch Accounting General Department Legal Department of Banking Department Supervision Cash Circulation Payment Systems Department of Department Department Banking Supervision Methodology and Planning Department for Information Valuables Technology Transportation and Department Department of State Money Collection Registration and Organization Licensing Central Clearing House Record Management Office Department for Work with NBU Settlement Problem Banks Operations Department NBU Central Vault Department of On- Site and Off-Site Banking Supervision NBU Regional Branches Department of Foreign Exchange Control and Licensing Office for Methodological, Organizational and Legal Framework for Financial Monitoring Part 1. GENERAL ECONOMIC SITUATION Annual Report 2002 1.1. REAL SECTOR OF THE ECONOMY Started in 2000, the tendency towards economic growth has been preserving. The main macroeconomic indices show growth of GDP, industrial output and services, as well as augmentation of real available income of individuals. In 2002, the dynamics of economic growth slowed down: the real GDP estimated 4.8% against 9.2% in 2001, the rates of industrial production made 7% against 14.2% in 2001 while those of agriculture made 1.9% against 10.2% in 2001. One of the factors slowing the growth was a deterioration of the external economic situation for the export- oriented industries. In nominal terms, in 2002, the GDP amounted to UAH 220,932 million, or UAH 4,583 per capita, which was UAH 388 as much as in 2001. In the year under report, GDP grew due to an increase in the GVA in all the economic activities except construction where it fell by 1.4%. Following the revival of domestic demand for finished goods, the highest GVA growth rates were observed in manufactur- ing industry (8.9%), as well as in wholesale and retail trade, trade in modes of trans- portation and repair services (8.1%). Within the structure of GDP calculated with the manufacturing method, the largest portion of GVA (20.3%) was obtained in final production-oriented manufacturing indus- try, 13.4% - in agriculture, hunting and forestry and 11.7% - in transportation. The share of net taxes on products was 12.3%, i.e. it grew by 0.7 percentage points compared with the previous year due to the piling tax pressure imposed on economic entities, which by no means stimulated business activity. Real Gross Domestic Product of Ukraine in 1991 – 2002 15 10 5 0 -5 -10 -15 Changes versus -20 previous period, percent -25 -30 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 The share of interim consumption within the total output of goods and services made 57%, i.e. it dropped by 0.8 percentage points versus 2001, which meant no cru- cial movement towards a reduction of production expenses and little improvement in industrial production. The most expensive businesses with a large share of interim consumption in the composition of goods and services output remained manufacturing industry (75.5%), extractive industry (64.4%) and construction (59.8%). 10 General Economic Situation Structure of Goods and Services Output Items 2000 2001 2002 Output of goods and services UAH billion 400 484.2 513.9 % 100 100 100 Interim consumption UAH billion 230 280 293 % 57.5 57.8 57.0 Gross value added with net taxes on food products UAH billion 170 204.2 220.9 % 42.5 42.2 43.0 GDP Structure by Categories of Use (in actual prices) 2001 2002 Indicators Total volume, Share, Total volume, Share, UAH billion % of total UAH billion % of total Gross domestic product 204.2 100.0 220.9 100.0 including: Final consumer expenses 156.3 76.6 168.9 76.5 Gross accumulation 44.4 21.8 42.1 19.0 Net export of goods and services 3.3 1.6 9.9 4.5 As the analysis of GDP structure by use shows, the share of final consumer expens- es in 2002 went down compared with the previous year by 0.1 percentage points to 76.5%. The largest part in the final consumer expenses was formed of household expenses that reached 54.3%, which was 0.7 percentage points as little as in the previ- ous year. The share of consumer expenses in the sector of public administration grew by 0.8 percentage points comparing with 2001 and made 20.4%. Negative in the GDP structure by categories of final use (in the view of creating investment prerequisites for economic growth) was reduction of the capital stock gross accumulation share from 21.8% in 2001 to 19.0% in the year under report that was absolutely insufficient taking into account the high (about 50%) depreciation rate of cap- ital assets and need for restructuring of enterprises. Deterioration of the financial per- formance of enterprises caused a slowdown in the growth rates of fixed assets gross accumulation compared with the previous year: in the year under report the rates made 104.9% (in 2000 - 112.4%, in 2001 - 106.2%). In the GDP structure by categories of final consumption the share of net export grew by 2.9 percentage points against 2001 and reached 4.5%. This dynamics was conditioned by 3-time increase of the surplus of goods and services compared with the previous year. Analysis of the GDP structure by income shows shifts of trends in transfer of income between the sectors of the economy compared with 2001.