Kuchma upbraids Cabinet of Ministers for country's poor financial condition (04/19/98)

Kuchma upbraids Cabinet of Ministers for country's poor financial condition

by Pavel Politiuk
Special to The Ukrainian Weekly

KYIV - President Leonid Kuchma upbraided his government on April 9 for failing to improve Ukraine's poor financial situation and reissued an order to drastically decrease spending this year.

"The main criterion of my evaluation is the economic situation, and it has not improved," President Kuchma told the ministers at a monthly Cabinet meeting. Ukraine has had trouble making ends meet since it was hit by turbulence on world markets last fall.

The president was addressing a Cabinet of Ministers meeting for the first time since parliamentary elections last month, in which Communists capitalized on widespread voter anger over economic troubles and took more than a quarter of the parliamentary seats designated for parties.

President Kuchma said the government faces three main problems: lack of financial stability; a non-payment crisis that has gripped the nation's industries; and a massive wage and pension backlog.

"Behind these unresolved problems can be seen the low level of leadership of the Cabinet of Ministers and the weak work of each minister," Interfax-Ukraine quoted the president as telling the government.

President Kuchma stopped short of announcing any changes in the government, but said the situation demands "tough personnel measures" He ordered Prime Minister Valerii Pustovoitenko to determine which officials should be fired.

"We must say thank you to those who cannot pull their weight, and look for new people," Interfax quoted the president as saying.

President Kuchma reiterated plans announced in January to decrease this year's budget deficit from 3.3 percent to 2.5 percent of the gross domestic product, and ordered the government to draft and implement spending cuts.

"The president firmly intends to decrease spending, lessen the government's domestic and foreign borrowing, and ease the debt burden," said Valerii Lytvytski, economic advisor to the president.

According to Mr. Lytvytski, the president has ordered the government to implement measures that would reduce inflation in 1999 to between 8 and 9 percent, and the state's budget deficit to between 1 and 1.5 percent of the GDP.

According to President Kuchma, the deficit rocketed to 6.7 percent in the first quarter of 1998 - more than twice the figure projected in the government's budget and in the loan agreement with the International Monetary Fund.

Excessive foreign borrowing and the lack of a concrete plan to cut spending reportedly were among the reasons that the IMF last month halted installment disbursements of a $542 million loan to Ukraine.

However, an IMF mission that arrived in Kyiv on April 14 was to discuss a new, longer-term loan of $2.5 billion to help ensure the long-promised structural reforms needed to spark meaningful economic growth.

"We are continuing to discuss our future Extended Fund Facility Program, and it shows that Ukraine is not bankrupt, but that Ukraine wants to put an accent on future structural reforms at this stage of development," Mr. Lytvytski said.

Ukrainian officials hoped to get the larger loan, which according to Mr. Lytvytski could be approved by the fund's board of directors in June with installments beginning by mid-summer.

However, talks on future cooperation are ongoing and, because the IMF has denied Ukraine the last two tranches of the stand-by loan, nothing is certain.

Top government economists indicated that Ukraine has already lost about $300 million of the $542 million stand-by loan, but IMF officials say the program is continuing.

"Our target is the EFF [Extended Fund Facility], and the IMF mission that has arrived in Ukraine primarily for talks on [the EFF] and not to monitor the stand-by loan," said Mr. Lytvytski. He explained that the longer-term loan would be adequate for Ukraine to begin structural economic structural reforms.

Kyiv authorities remain hopeful that the IMF will grant the long-term loan that Ukraine is asking for. "I think the decision on the Extended Fund Facility (EFF) program will be positive," President Kuchma said.