Statement by Ukraine's Embassy (02/11/96)

Statement by Ukraine's Embassy

The authors of the above-mentioned publication, according to the acknowledgments of the book, alone bear responsibility for the "1996 Index of Economic Freedom." The two researchers made estimates of the economic development of 142 countries using no significant input from outside sources and no references to excellent data available from international financial institutions and research centers of U.S. NGOs and universities monitoring their development. Some doubt regarding the quality of such research may arise from that very fact.

The authors state in their acknowledgments that any shortcomings are their responsibility. In the case of Ukraine's treatment in the study, as well as in some other cases, such shortcomings are indeed conspicuous.

The major shortfall is that the authors used statistical data for 1993-1994, while projecting their calculations to 1996. Ukraine did have a slow start in reforming its economy, but in 1995 it achieved remarkable progress in implementing reforms, due to a significant extent to U.S., European Union and the International Monetary Fund assistance it has received. Ukraine was mentioned by Michael Camdessus of the IMF at the IMF/World Bank Annual meeting in October of 1995 as one of the most successful cases of stabilizing the economy.

The Heritage Foundation's "1996 Index of Economic Freedom" states without doubt that Ukraine has a top income tax of 90 percent, a high level of trade protectionism, a level of inflation of over 500 percent, high restrictions on banking, a high level of regulation. Most of these figures are true - but only with regard to 1993-1994. Using such data to place Ukraine in the category of countries where economic freedom is repressed causes direct damage to the perception of the pace of Ukrainian reforms; and has nothing to do with a scientifically accurate study.

There are several other inaccuracies in the above-mentioned publication: purchasing power parity (PPP), GDP per capita data as well as share of the GDP produced by the state sector are far from being accurate. For example:

1) The per capita GDP of Ukraine in recent years has never been larger than that of Poland. (According to the World Bank 1996 Atlas: $5,380 in Poland and $3,330 in Ukraine.)

2) Stating in corresponding articles on Ukraine and the U.S. that government consumption as a percentage of GDP in Ukraine is the same as in the U.S. (in fact, it is higher) shows little or no understanding of the legacies of the Communist past and problems of transition to a free market. But stating in the same paragraph that the public sector in Ukraine still produces most of the GDP is not accurate either. (In fact, only half of the GDP is being produced by the state sector in Ukraine.)

By contrast, the publication "Nations in Transit" by Freedom House, despite having a 1995 copyright, is more updated, reasonably accurate and comprehensive. Perhaps because more than 17 prominent researchers were involved and more than 50 research institutions, universities and NGOs from different countries participated in verifiying the accuracy of the publication.

The "1996 Index of Economic Freedom," on the other hand, largely consists of outdated and imprecise measurements presented by two independent researchers. Such an inaccurate tool cannot be used when considering issues of bilateral cooperation with Ukraine nor could it be a useful guide for U.S. corporations increasingly dealing with our country.

The poor quality of this attempt to index economic freedom by Bryan T. Johnson and Thomas P. Sheehy is damaging not only to the image of Ukraine struggling to build a free economy and democracy, but also to the reputation of the respected Heritage Foundation, well known for producing timely and accurate research.

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