Institutional transformation of public finances in Ukraine

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INSTITUTIONAL TRANSFORMATION OF PUBLIC FINANCES IN UKRAINE

Introduction

An urgent task for transitional economies is changing the rules of the game, which determine the coordination of economic interaction. Their institutional transformation is a change in the relationship between the state and the market as the goal of institutions of social interaction and development. The development of market relations requires the intensification of private entrepreneurship, commercial credit, the restructuring of investment mechanisms, and the distribution of national income. At the same time, the key role of the state budget, taxes, local finance, and interbudgetary transfers remains the same. Public finance is the institution that ensures economic sovereignty, reconciles social and economic objectives, and balances short-term and strategic goals of society. The restructuring of public finance is therefore a key component of the systemic transformation of the economy and public administration. Studying and summarizing national practices of institutional reorganization in the sphere of finance is necessary to assess positive and negative experiences. In Ukraine, the redistribution of functions between the state and the market has proven to be a complex and contradictory process.

Presentation of basic material

During 1990-2005, the transitional nature of Ukraine's economy required theoretical justification and practical development of mechanisms of social transformation, and public finance occupying the leading position among them. The main directions of economic transformations were defined: firstly, formation of national economy as an independent economic complex with autonomous monetary and financial system; secondly, transition from centralized and distributive to marketcompetitive model of coordination of economic activities and ensuring economic development.

The sphere of fiscal policy, public finance, and the budget was defined as an outpost of state sovereignty and the basis for the next democratic transformation of the economy and society. The strategic goal of government measures was to ensure the irreversibility of market transformations, the sustainability of the national economy, and long-term macroeconomic stability. The systemic transformation of the economy in the post-socialist countries included the following tasks: changing the role and functions of the state, changing property relations, establishing market infrastructure institutions, forming a system of markets (goods and services, money, capital, labor, etc.), reviving the institution of entrepreneurship as the basis for the development of market relations.

At the initial stage of systemic transformation, the leading Western financial institutions (primarily the International Monetary Fund, the International Bank and the European Bank for Reconstruction and Development) proposed a set of measures known in the literature as the "Washington Consensus" or "Standard Model" to the governments of transition economies [1, p. 7-20]. The transformation program included the construction of stable institutions and cooperation between the state and market players, because economic liberalization should be accompanied by the protection of property rights.

In practice, measures to deregulate the economy have not triggered market-based economic growth; attracted foreign investment has not ensured systemic modernization and structural reforms; and small and medium-sized enterprises have not solved employment problems and Ukraine's market deficits. The transformational crisis was much deeper and more prolonged than experts had anticipated. institutional reorganization finance market

The contents and peculiarities of economic transformation can be considered in the categories of modern institutional theory. Under the conditions of transition economy there is a contradictory process of simultaneous formation of a new institutional structure of society and functioning of traditional social institutions. At the same time, the historical specificity of transformational economies consists in artificial, conscious introduction of new institutions, and filling traditional institutions with new contents. The efficiency of institutions which are not an organic product of the evolutionary development of the national economic system, but are deliberately introduced and "implanted" into the economic environment, is much lower. In addition, there is a certain "rejection" of alien forms of organization and regulation of the economic space.

The effectiveness of transformation depends on the state and its institutions as actors in the modernization of the socio-economic system. In the set of political, legal, organizational and other mechanisms that ensure the systemic transformation of society, an important place belongs to financial instruments. As historical experience shows, the state can initiate and encourage the development of market economy through reforming the tax and banking system, conducting an active monetary and investment policy [2, p. 43-48]. At the same time, the consequences of economic measures of the government (in particular: tariff policy, state-owned bank operations, development of state entrepreneurship, regulation of joint-stock companies, public debt management, etc.) can increase the contradictions of the transition economy, cause social losses without visible economic achievements.

Finance itself is also undergoing significant transformations: its place and role in social reproduction, the functions of various parts of the financial and credit mechanism, hierarchical and network links between individual elements and the like are changing. The financial system is transformed into a mechanism ensuring functioning and reproduction of the market model of social reproduction. Financial institutions such as taxes, state budget, government borrowing, government expenditure acquire qualitatively new features. Institutional changes in the financial system of transition economy are the dismantling of the system of budget financing of the economy, decentralization of public finance and growth of the role of local finance, formation of the financial market as the basis for capitalization of cash flows and formation of investments.

In addition, the process of market transformation increases the independence and autonomy of the middle and lower levels of government in financial matters. This should lead to organizational and administrative reorganization with a considerable reduction of public expenditures for the administrative apparatus and a more efficient use of targeted budgetary funds. In Ukraine, for a long time the opposite happened in real life, when formal restructuring of public administration bodies took place, traditional inefficient institutions based on informal relations were preserved.

The institutional organization of the transition economy as a set of formal and informal norms, state and market regulators, should ensure the implementation of the social component of economic policy. The state becomes a subject of market relations as a seller of public goods. Building of socially oriented economy and social state consists in creation of necessary institutional conditions for harmonization of public and private sectors of economy, for optimal distribution of resources between them, for maximization of common well-being, and observance of principles of social justice. This requires the creation, support and development of new institutions. The latter should provide an accelerating influence on the nature of the transition processes in interaction with the state.

This direction of institutional transformation corresponds to the tradition in economic theory, represented by the works of Buchanan J.M. and Olson M. [3-5]. These scholars question the optimization capacity of the state as an economic entity. They emphasize the need to complement the functional reforms of budgetary, fiscal, and monetary systems with the development of civil society. It is civil society that must balance the power of the state apparatus and control its activities. To avoid or at least reduce the negative effects associated with individualistic motives of politicians and officials, it is necessary to have an effective system of public control organizations, legislative restrictions on the regulation of financial flows in a representative democracy [4, p. 75-76]. In Ukraine, the relevant institutional support is only being formed. When the development of civil society is on low level, it is public finances and conditions of access to their redistribution that are the main factor and tool of hindering processes in the development of market reforms and democratization of the economy.

Ukraine belongs to the group of countries characterized by a high level of continuity of political and administrative elites, low quality of institutions and weak development of civil society [6, p. 227]. This explains not only the slowdown of institutional changes, but also a decrease in the potential for economic development and the loss of competitive positions in the world markets. The creation of institutional channels for the implementation of group interests complicates the processes of macroeconomic stabilization. Political and administrative elites can use the levers of state power contrary to the priorities of economic and social development.

During 2005-2021, the institutional changes in Ukraine's economy took place due to significant transformations in international economic relations. The formation and spread of transnational capital and the global market became new trends in the development of the world economy. The escalation of influence of transnational corporations and transnational banks became one of the main forms of economic globalization of this period [7, p. 4546]. Under these conditions, the vulnerability of national financial systems increases. So, the consequence of the domination of the Ukrainian stock market by speculative foreign investors has been a sharp decline in the share of foreign capital from 80-90% in early 2008 to 60% after the crisis. This had a negative impact on the processes of formation of big business in Ukraine and on the possibilities of post-crisis recovery [8, p. 179]. The functioning of the stock market in Ukraine occurs at a level insufficient for the effective provision of financial and investment resources adequate amount of large businesses. This leads to imbalances in the structure of the market, when the share of government securities significantly exceeds the share of other financial instruments.

Political and economic instability; growing money supply aimed at covering the budget deficit; high risks of uncontrolled inflation; and a shortage of Ukraine's financial and investment resources have a negative impact on the state and prospects of financial support for economic development. The haphazard debt policy of the state leads to distortions in the financial system, a considerable reduction of Ukraine's financial resources, and a considerable growth of their cost. The risks of debt financing of the state budget deficit remain acute, such as: currency, interest, credit, and debt prolongation risks. The active practice of external borrowing is associated not only with high risks, but also with largescale transfers of Ukraine's resources. In particular, external debt servicing is realized through withdrawal of national resources from the domestic circuit, reallocation of resources from domestic consumption and capital accumulation.

The state is the main and decisive institution in the process of institutionalizing the distribution system. At the same time, a number of questions arise concerning the "quality" of the state, the mechanisms of public control over the state bureaucracy, in particular, in the sphere of public finance. A special burden in a transition economy falls on the institution of the budget [9]. It is the budget policy that has a significant impact on economic and social processes in the context of institutional insufficiency of the market environment.

Its main tasks are: support for the implementation of the Public Financial Management System Reform Strategy for 2017-2020 and determine future investments in information and communication technologies for the public financial management system through auditing, support for modernization of budget planning software to implement medium-term budget planning, support modernization of existing information and communication technology equipment to ensure the continuity of systems in the Ministry of Finance, strengthening the capacity of ICT systems to ensure timely exchange of information needed to manage and forecast cash flows [10, p. 303]. Taking into account the increasing global turbulence of economic development and structural changes in the world economy observed during the last decade, macroeconomic policy is undergoing transformation. In particular, there is a fundamental tendency to strengthen institutional mechanisms of national policy implementation in the sphere of public finance. We agree with the opinion that "reloading of formal and informal institutions of public finance management today is an integral element of the new state philosophy" [11, p. 45]. At the same time, the key issues are: balancing the interests of business and society, harmonizing the needs of economic development and social welfare, and minimizing the negative impact of taxation on economic activity.

Institutional changes in Ukraine's financial system are accompanied by the following negative trends: inertia in the transition from budget to market mechanisms of investment, domination of short-term fiscal priorities over the long-term tasks of financial support of economic development, imbalance of social and economic expenditures of the budget in conditions of its deficit, focus on one-time proceeds from privatization, the lack of formation of the capital market, combined with a sharp reduction in the resources of accumulation and investment, the deployment of the crisis of non-payment and inflation.

Scientific support of the reform of the financial and budgetary sphere and the development of financial policy of the state is focused on the problems of institutional factors and political conditions for their implementation. The systemic problems of Ukraine's public finances functioning have an institutional nature. In particular, these problems are: the use of borrowed funds to solve current problems; the growing share of GDP, which is redistributed through the consolidated budget; a significant increase in social payments at the expense of the reduction of budget investment in fixed capital; the constant growth of spending on public administration. Everything mentioned indicates the negative public inefficiency of institutional transformations. The use of the institutional approach will accelerate transformations in the sphere of public finance, and most importantly - the optimization of these transformations in the direction of compliance with public demands and the needs of economic development. At the same time, the lack of public consolidation, institutional trust and political consensus constitute significant threats to effective public finance policy.

Conclusions

In post-communist countries, the process of institutional transformation is of paramount importance. The transformation is changes in the norms and rules of coordination of economic interaction. In Ukraine, the process of developing a comprehensive approach to deepening and increasing the efficiency of financial reforms based on the synthesis of the functional and institutional concepts of finance has begun.

The effectiveness of institutional changes in the financial system is reduced by a number of negative trends. They are caused by systemic opposition of interests of financial-political groups to social needs of economic development and welfare. Achieving a positive social effect from the institutional transformation of public finance implies: 1) effective institutional interaction between the state and economic players; 2) the consolidation of society on the basis of democratic values and national priorities; 3) the creation of civil mechanisms of control over the state and strengthening institutional trust, is the basis of social development and increasing the competitiveness of the national economy.

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