Parliament passes 1997 budget after seven months of wrangling (07/06/97)

Parliament passes 1997 budget after seven months of wrangling

by Roman Woronowycz
Kyiv Press Bureau

KYIV - The Verkhovna Rada approved a 1997 budget on June 27, seven months after it was presented to the legislature for review.

The budget bill passed by a vote of 229 to 71, ending a process that had reached a point where simply to have a budget had become the criteria for success.

President Leonid Kuchma, speaking in New York two days before the budget was authorized, told Interfax-Ukraine, "It's as if the lawmakers are attending to the budget according to the saying 'anything for a quiet life.'" He added that he did not need "a budget for the sake of a budget."

The national deputies endorsed a revenue package that gives the government 22.4 billion hrv and approved budget expenditures of 28.1 billion hrv, which will produce a 5.7 percent deficit of 5.7 billion hrv against the gross domestic product, but 20.3 percent against government expenditures.

The budget identifies several sources for financing the deficit: domestic borrowing will cover 3.34 billion hrv, while foreign credits have been lined up to the tune of 2.4 billion hrv.

Many believe that what gave impetus to the final drive to approve the budget was a threat that hung over the government and the legislature that if the budget was not approved before July 1, when the International Monetary Fund began a review of Ukraine's economic progress in Kyiv, that a promise of nearly $3 billion in economic reform loans would be withdrawn. The IMF had stated that one of the central conditions for the granting of the loan was the passage of a budget with a deficit of under 6 percent. They also demanded that Ukraine reform its tax system, improve the efficiency of the tax collection process and keep inflation below 25 percent in 1997. Of the 41 requirements, Ukraine has thus far fulfilled 27, including a lowered inflation rate and, now, a budget.

It is not clear that the IMF will accept the amputated tax package. Originally seven tax reform bills were submitted by the government for Verkhovna Rada approval. After much political haggling only two, a value added tax of 20 percent and a corporate tax law, which removed tax incentives to foreign investors (not what the IMF wanted), was approved.

One Verkhovna Rada deputy who was involved in the failed attempt to push through the full tax package said that in the end, the budget, in whatever form or shape, was passed only for Ukraine to have something to show the IMF. Commenting a day before the budget went through its third and final reading, Yurii Tykhanurov of the Social-Market Choice faction said, "It will be merely a piece of paper. It is being done for the IMF." After the budget was passed, he was even more blatant in his criticism. "It is an impossible budget. It is a bad budget."

Other national deputies were of a like mind. Oleksander Lavrynovych of the Rukh faction said, "What can I say about a document that regulates and budgets yesterday. I look at it as not a serious document. It does not reflect today's needs."

Former Vice Prime Minister for Economic Reform Viktor Pynzenyk, who resigned on April 2 over what he called his inability to further move reforms, said he did not want to comment - but then could not resist. "I do not know what to make of this document. I do not know what it means, how to understand it?" said Mr. Pynzenyk.

The government and the country have lived by budget guidelines based on 1996 expenditures since January, when President Kuchma signed a decree to that effect after it was apparent that no budget was going to be approved. On April 8 the president asked the Verkhovna Rada to extend the emergency budget to July 1.

Back in January an optimistic government had submitted to the Parliament a tax reform packaged dubbed "Economic Growth '97," which it hoped at the time would cut income taxes, generate needed revenues and spur economic recovery.

The package quickly got bogged down in legislative committees, and was harshly criticized by the leftist forces for being too lenient on foreign investors and too harsh on pensioners and the needy.

President Kuchma made a critical mistake when he decided to play hardball with the Verkhovna Rada and instructed the prime minister to withhold the budget document, which had been returned for modification after it had been approved in its first reading by the Parliament, until the tax package was approved. The legislature was non-plussed and continued to bide its time reviewing the tax bills.

Not until April, after the IMF had expressed it displeasure with the pace of the budget process and had threatened to withhold a $3 billion package of loans, did the government move to reach a compromise with the legislature.

In the end the budget process consumed the prime minister and the author of the tax reform package, Vice Prime Minister Pynzenyk.

Mr. Pynzenyk resigned on April 2. Mr. Lazarenko resigned on July 1, a little more than a week after he had taken ill and was temporarily replaced by First Vice Prime Minister Vasyl Durdynets. Although he stated that he was resigning for health reasons, political observers said he had been pushed out over disagreements with the president and his inability to get the budget approved. Ironically the budget passed nine days after Mr. Lazarenko had defacto stopped being prime minister.

With its economy still in decline, Ukraine will be hard pressed to gather anticipated revenues. On June 28 the Ministry of the Economy released figures that present a dismal picture of Ukraine's economic landscape in the first five months of 1997. The gross domestic product (GDP) reached only 33.2 billion hrv, down 7.2 percent over the same period last year. Industrial production declined 4.9 percent, and Ukraine's budget deficit stood at 1.73 billion hrv, while its foreign trade deficit was 2.7 billion hrv. Unemployment increased from 350,000 to 500,000 people by official estimates, although the number of people who have simply stopped looking for work is considered to be much higher.

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