Frustrated with stalled reforms, Pynzenyk offers his resignation (04/06/97)

Frustrated with stalled reforms, Pynzenyk offers his resignation

by Roman Woronowycz
Kyiv Press Bureau

KYIV - Vice Prime Minister of the Economy Viktor Pynzenyk, who has attempted to cajole and drag Ukraine toward a free market economy, tendered his resignation on April 2, apparently frustrated with his inability to move the process forward.

"I believe that Mr. Pynzenyk resigned because he saw that he could not adequately and fully influence the work of reform," said Tamara Kutsai, the vice prime minister's press secretary, who emphasized to The Weekly that Mr. Pynzenyk's had not yet released an official statement.

Ihor Hryniv, Mr. Pynzenyk's aide, explained that the failure of the Verkhovna Rada to pass either the 1997 budget or a tax reform package prompted Mr. Pynzenyk's action. He explained that Mr. Pynzenyk's economic program would only work if the tax package and the budget were passed. "We will now see further stagnation and the work done toward macro-economic stabilization could be in vain," he noted.

President Leonid Kuchma did not immediately announce whether he would accept the resignation of his captain on economic reforms at such a crucial time in the process.

Mr. Pynzenyk's baby, the tax reform package, which he hoped would prompt businesses to come out of the gray economy and would finally stimulate investment and economic recovery in Ukraine, has been languishing in the Verkhovna Rada since the end of last year.

Mr. Pynzenyk's belief in a strict monetary policy coordinated with the National Bank of Ukraine has stemmed inflation in Ukraine (the March inflation figure is 0.1). But he had stated several times that without tax reforms and a balanced budget the economy would not begin to move upward.

Verkhovna Rada National Deputy Vadym Hetman, a proponent of Mr. Pynzenyk's reform plan, said the loss of the vice prime minister could be a fatal setback to the move towards Westernization of Ukraine's markets. "Today, there is not a single man in the government who has the ability to settle the outstanding issues," explained Mr. Hetman.

He said any chance for approval of a tax reform package by Parliament could die with Mr. Pynzenyk's resignation. "Today Pynzenyk is the only man with in-depth knowledge of the five tax reform bills, and he is the only one who will fight for them."

What has frustrated Mr. Pynzenyk most is the Verkhovna Rada's inability to pass the tax reform package. It calls for a substantial decrease in corporate and individual taxes, for capital depreciation allowances and other tax breaks to stimulate investment.

Today much of business in Ukraine is conducted outside the mainstream, which allows firms to avoid paying income tax. Because Ukraine has committed itself to halting monetary emissions to cover budget deficits, which was a substantial reason for the hyperinflation of the last few years, it must receive sufficient revenues through taxes to cover the budget. President Kuchma complained in his state of the nation address on March 21 that already this year there was a huge shortfall of anticipated revenues in Ukraine's coffers.

The other problem that has bedeviled Mr. Pynzenyk is the Verkhovna Rada's lack of desire or simple inability to pass the 1997 budget. The Verkhovna Rada has refused to vote on the budget until a tax package is in place, but it has yet to act on the tax package, has expressed little support for tax reform and has shown every inclination to reject the bill submitted by Mr. Pynzenyk and the Cabinet of Ministers, or simply let it die.

Meanwhile, President Kuchma - who severely criticized Prime Minister Pavlo Lazarenko for submitting an unworkable and unrealistic budget to the Verkhovna Rada - has said he will veto any budget that is not based on the tax reform package.

There is also the matter of rumors of an upcoming government reorganization, which some suggest may have led to Mr. Pynzenyk's offer to resign. His colleagues are downplaying that restructuring, which may include the elimination of the office of vice prime minister of the economy.

Observers say Mr. Pynzenyk could be using his resignation tender as leverage to negotiate a stronger position for himself if a reorganization does take place. President Kuchma's chief of staff, Yevhen Kushnariov, said his impression was that Mr. Pynzenyk is profoundly dissatisfied with the performance of the Cabinet of Ministers and the pace of economic reforms.

"If that was the reason behind the letter of resignation, then the possible upcoming changes in the structure of the Cabinet and staff may force Mr. Pynzenyk to reconsider his resignation. If not, then the resignation most likely will be accepted," said Mr. Kushnariov.

However, the vice prime minister's aide, Mr. Hryniv, told Interfax-Ukraine that Mr. Pynzenyk's resignation "was in no way connected with the upcoming Cabinet restructuring."

Prime Minister Lazarenko was expected to address the Verkhovna Rada before the end of the week and present a proposal for streamlining and reorganizing the government. Originally, he was to speak on April 1, but never appeared.

Insiders say that he and the president disagree on the amount of authority that ministers should have. Mr. Lazarenko is battling to retain his absolute authority in the Cabinet, while Mr. Kuchma favors more decentralization, making the ministers more accountable for the work of their respective ministries.

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