EDITORIAL: The Rada approves a budget (01/10/99)

EDITORIAL

The Rada approves a budget

The Verkhovna Rada did the seemingly impossible in its politically divided house and approved a national budget for 1999, hours before the start of the fiscal year on January 1. Of course, nearly half of the 450-member parliamentary body did not participate in the final vote. And there are those who say the document was put together in such a slipshod manner that it cannot be called a realistic budget. But a budget it is.

Although it would be nice to consider the document a New Year's gift to the Ukrainian people, little in the details could support such a proposition. Communists and Socialists abstained from voting to protest the insufficient funds allocated for social programs and wage/pension arrears, but the government is simply too poor to spend money on anything but the bare necessities to keep the country from sinking further economically. They also have called the budget IMF-directed.

To be sure, the budget was put together to appease the International Monetary Fund - to ensure that Ukraine will get the credits it has been promised through the IMF's Extended Fund Facility (EFF) to the tune of more than $2 billion. Without the money Ukraine will be in dire financial straits in 1999.

A key IMF requirement for a minimal budget deficit was met; government figures forecast this year's shortfall at 1 percent. But another IMF requirement, perhaps its strongest demand, was that Ukraine put together a realistic budget for 1999. Whether this budget meets that demand depends on whether the government can collect the revenues it has projected for 1999. In 1998, government coffers received about half the expected revenues. Another source of revenues, through the privatization of government-owned industries, also has come up short in the past, with Ukraine failing to meet projected sales figures in both 1997 and 1998.

Also of concern is whether Ukraine will be able to pay off the foreign debt on government-issued bonds that will come due in 1999. The 1999 budget does not provide the needed money in full, and where it expects to get the funding is anyone's guess.

The IMF will make its decision on the merit of the Ukrainian budget, if it is in fact realistic, by February and then decide whether it will continue to provide credits through the EFF. Under pressure from its members to become more flexible in the aftermath of criticism of its policies in East Asia, the IMF may be inclined to put its stamp of approval on Ukraine's 1999 budget for all its shortcomings.

Nonetheless, that will not solve Ukraine's financial woes. Some political observers have predicted that Ukraine may be forced to begin printing money as it did in the first years of independence to make ends meet in 1999. That, in all likelihood, would result in the cancellation of the IMF program. The prognostication gains some value when one considers that 1999 is a presidential election year and, as many politicians are prone to do at such a time, President Leonid Kuchma may look for short-term solutions to long-term problems to put some money in the pockets of the voting public and make the economy appear as healthy as possible.

An IMF forecast for Ukraine released in mid-December paints a dismal picture for 1999 even without a money emission. Titled "World Economic Outlook," the annual report forecasts that economic decline will deepen in Ukraine in 1999: economic output will fall by 3.5 percent and inflation will surge to 32 percent from last year's 11 percent. If Ukraine begins printing money, inflation could spiral out of control.

Every New Year should begin with good feeling, hope and optimism. The Kuchma administration, however, would do well to temper its optimism, to maintain a program of austerity and let the nation know that 1999 will be another tough year, hopefully the last. And most importantly it must begin to follow through on its plans and promises to restructure the economy and the government, break the chain of graft and corruption, and move strongly to complete economic reform.

That will mean more sacrifice by Ukrainians in the new year, but brings with it the hope that the country will enjoy a better future in the new millennium.

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