Parliament approves austere budget (03/31/96)

Parliament approves austere budget

by Marta Kolomayets
Kyiv Press Bureau

KYIV - The Parliament approved Ukraine's 1996 budget on March 22 paving the way for the release of stalled International Monetary Fund credits.

The austere budget, which passed by a vote of 266 to 22 (354 deputies were registered, 11 abstained and 56 did not take par in the vote), includes a deficit of 6.2 per cent of the gross domestic product. This is 1.1 percent lower than last year's figure of 7.3 percent and satisfies requirements set forth by the IMF to release a delayed installment of a $1.7 billion stand-by loan.

It also provides for annual inflation of about 40 percent, as compared to 183 percent last year.

National Bank Governor Viktor Yushchenko said it would be possible to keep inflation at a rate of 40 to 45 percent in 1996 by pursuing a tough monetary policy.

The 1996 budget includes income of $12.8 billion (U.S.) and expenditures of $15.3 billion, for a deficit of almost $2.5 billion. The deficit will be financed by internal state loans of $800 million, National Bank credits of $573 million, and foreign loans and credits of $1.09 billion, including loans from the World Bank, the European Community and the Japanese Eximbank.

The final budget differs from the budget passed in its first reading in February in that there is a higher budget deficit ($182 million more). Additional costs were earmarked for Chornobyl clean-up expenses, as well as increases in social programs, education and health care. However, a monetary emission from the National Bank will not be necessary, because these additional costs will come from credits issued by Japan late last year.

Funding for the liquidation of the consequences of the Chornobyl disaster accounts for 6 percent of Ukraine's budget, or $960 million more than funds allocated for defense and education $738 million and $705 million, respectively, or 4.8 and 4.6 percent.

"I want to assure deputies that the government will do everything to implement the budget," said Prime Minister Yevhen Marchuk, who attended the parliamentary proceedings on March 21-22.

He pointed out, "there is no one in the government who is satisfied with the projected budget because the funding proposals were two times greater than the budget can afford. But the draft presented to you is the lesser of all evils; it is the optimum choice that we can bear at this time."

"Today's budget cannot satisfy us completely. But this is the best version in today's economic crisis, setting out priorities of reforming the energy sector and restructuring the entire economy," Vasyl Hureyev, Ukraine's minister of the economy, told Reuters.

The toughest budget passed in four years of Ukraine's independence, Prime Minister Marchuk told reporters its adoption "is of great consequence for Ukraine's image in the world, and not only in the eyes of international financial establishments."

"By practicing internal budgetary discipline, Ukraine is growing into an economically civilized nation," emphasized the prime minister.

Ukraine had to adopt a budget before April if it is to be considered for the allocation of IMF credits, originally $700 million, but with a promise of $900 million if the Parliament passed an acceptable budget by this time.

President Leonid Kuchma, who is viewed as a staunch reformer by Western leaders, was also promised substantial aid from the IMF ($3 billion to $4 billion) until the end of the century, if Ukraine stays on the course toward market reform.

During this last week, Johannes Linn, vice-president of the World Bank, met with President Kuchma and urged the Ukrainian leadership to stay on course toward reforms, adding that the World Bank is prepared for cooperation with Ukraine in a variety of areas.

Although he acknowledged that each country needs to find its own style of reform, Mr. Linn noted that macroeconomic stabilization is the foundation of all reforms.

"The government showed it has no intention of carrying out the will of the people and will instead implement a program dictated from overseas," Communist leader Petro Symonenko told Reuters.

"The question is one of life or death as living standards plunge to levels of mere physical survival," he said after the budget was passed.

Despite the fact that left-wing forces make up more than one-third of the Parliament, as the March 22 vote showed, many heeded Mr. Marchuk's words, which in turn allowed the budget to be adopted.

"The approval of the budget and the entire period leading up to the final vote, including work in parliamentary committees, specifically the budget committee, has demonstrated that despite the bottlenecks we come up against in dealing with the Parliament, and despite the tough nature of the problem at hand, we, nevertheless, are able to find common ground and achieve compromises when we come to understand that we are tackling a vital challenge of national importance," said the prime minister.

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