1. SESSION 2: The role of the financial sector in attracting FDI Inna Golodniuk CASE Ukraine www.case-ukraine.kiev.ua

3. Rudimentary development of the domestic capital markets  Hinders implementation of core policies and reforms  Monetary policy  Pension reform  Monetary policy – lack of instrument for OMO, inflation targeting challenged  Pension reform – restriction on investment possibilities for PPFs and insurers www.case-ukraine.kiev.ua

4. Capital Market Development  Liquidity  Competitiveness  Need for proactive and consistent government  as market participant  as the Regulator www.case-ukraine.kiev.ua

5. Market Liquidity  Supplying new instruments to the organized market Privatization through IPOs for most attractive enterprises Channeling mortgaged backed securities to the market Free float of stocks of state-owned enterprises (with state ownership) Government bonds www.case-ukraine.kiev.ua

6. Liquidity  Abolish limitations regarding exclusive listing at “stock exchanges”  Obsolete regulation of derivatives  Administrative interventions in the commodity markets www.case-ukraine.kiev.ua

7. Competitiveness  Ukrainian securities are listed on western stock exchanges  Foreign investors cannot or unwilling to penetrate  Joint Stock Law  Overregulated Capital Account www.case-ukraine.kiev.ua

8. Capital Account Liberalization  Restrictions: numerous, legislative acts of different level, lack of systemic approach Securities trading (stocks, bonds, instruments of investment funds) Money market operations Operations with derivatives Foreign investments, real estate transactions Bank credits, guarantees, account opening Allocation of investment fund asset www.case-ukraine.kiev.ua

9. Capital Account Liberalization Double asymmetry:  Outflows are more restricted than inflows  Residents more than non-residents Ukraine, Belarus and Moldova – CEE remaining capital account restriction areas Russia and Kazakhstan – liberalization by 2007 www.case-ukraine.kiev.ua

10. Capital Account Liberalization Need to coordinate with transition to inflation targeting Announce clear liberalization sequence and implement it, 2-3 years Stock market operations, FDIs, investment in real estate – early stage Money market operations – final stage www.case-ukraine.kiev.ua

11. Thank you CASE Ukraine www.case-ukraine.kiev.ua 10 Starokyivska Str., Suite 15 04116, Kyiv, Ukraine T/f: (38-044) 483-2614