New group to begin work on Ukraine's budget (06/13/99)

New group to begin work on Ukraine's budget

by Roman Woronowycz
Kyiv Press Bureau

KYIV - In an effort to avoid the political squabbles and the inaccurate projections that have been a hallmark of the country's budget process in the last several years, Ukraine's Ministry of Finance and several members of Parliament announced on June 9 that they have formed a joint working group to pre-empt foreseeable political problems and roadblocks in the formation of the 2000 budget.

The committee will attempt to improve cooperation and communication between the Cabinet of Ministers and the various Parliament factions in the budgetary process, which often broke down over failures to meet preparation deadlines and over ideological differences in budget priorities.

Formed by a Cabinet of Ministers resolution of May 27, the working group is headed by Minister of Finance Ihor Mitiukov and the secretary of the Parliament's Budget Committee, Valerii Khoroshkovskyi, a member of the National Democratic Party of Ukraine.

"This committee is not formally associated with the Verkhovna Rada Budget Committee. It is an initiative committee," said Mr. Mitiukov. "We hope that it helps the budget committee in its work to help reach a consensus among the various political powers in the Verkhovna Rada so that the budget process proceeds normally."

Mr. Khoroshkovskyi underscored, on the other hand, that the group is far from agreement on the details of the budget package, and that the intent is not to gather like-minded individuals for political strength.

"Just because we are behind the same table does not mean that we agree on everything," said Mr. Khoroshkovskyi. "It means that we want to reach an agreement so that the process does not break down again."

The working group faces a major initial hurdle due to the fact that it has no members from the leftist factions; the faction holds a simple voting majority in Parliament, which gives them influence over the legislative process and as such the budget. However, Mr. Khoroshkovskyi said his group will make every effort to draw the Communists and Socialists into the effort.

Mr. Khoroshkovskyi said one of the group's main objectives is finally to develop a balanced budget for Ukraine. That is a goal put forth also by the International Monetary Fund, whose loans to Ukraine are used to cover budget shortfalls.

The biggest obstacle the budget process has faced in the last years is the determination by the leftist majority to maintain an extensive system of subsidies to nearly all segments of society during a time of very limited resources. The leftists have shown little regard for Western-based ideas of balanced budgets and fiscal responsibility.

Nearly eight years after the dissolution of the Soviet Union, the government still finances Soviet-era subsidies in transportation, housing, electricity and student stipends, as well as a massive assistance program for Chornobyl victims. The Chornobyl program is thought to be awash with fraud and dubious claims of incapacitation by recipients. Meanwhile the country has failed to collect a large portion of taxes from businesses that continue to hide in the shadows, which has left the government unable to finance even the most basic programs.

For the last three years the Cabinet of Ministers, which is responsible for preparing an initial budget proposal and presenting it to the Verkhovna Rada, which then finalizes and approves it, has had the budget document thrown back for major reworking, mostly because leftist national deputies have demanded more funding for social programs. And each year a budget crisis has developed as the parliamentarians have tried to push through a budget with time running out.

In 1997 the differences between what the Cabinet of Ministers wanted and what the Parliament expected were such that the document was not approved until halfway through the fiscal year.

Many times the budget process in particular and the sessions of Parliament in general have taken on the appearance of a populists' game of liar's poker, in which one national deputy promises Ukraine's citizens higher wages, which is upped by another one's bluff that he can deliver sugar at lower prices, or keep housing subsidies at their current levels.

The budgetary process has been at the center of the game, where all the promises are thrown into a package and approved, and left for the government to carry out.

With its lack of financial resources, the government has had to turn to domestic and international financial institutions to pay for the programs in the budget, which has led to a precarious financial position.

As of May 1 Ukraine's foreign debt totaled $12.4 billion, according to an RFE-RL report that cited the Kyiv newspaper Biznes. The country owes $2.79 billion to the International Monetary Fund, $1.89 billion to Russia, $1.77 billion in fiduciary loans and $1.21 billion in World Bank loans.

In addition, a $163 million payment to the Dutch-based ING Bank for government domestic loan bonds that matured on June 9 has not been made, which threatens Ukraine with a default. Kyiv is attempting to get the bank to agree to a restructuring of the reimbursement into Eurobonds with a 17.5 percent payoff, but the bank is resisting the restructuring. Minister Mitiukov said discussions with ING Bank are continuing.

He also said that, even though Ukraine has major financial hurdles yet to overcome, things are looking up. "Our financial situation is much better than last year, taking into account that we are paying out [pensions and wages] owed from last year. We have paid out some 40 percent of what we owed," said Mr. Mitiukov.

The Cabinet of Ministers is scheduled to submit its 2000 budget to the Verkhovna Rada by September 15.

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