Ukraine's Cabinet submits new plan for economic development to Parliament (03/12/00)

Ukraine's Cabinet submits new plan for economic development to Parliament

by Roman Woronowycz
Kyiv Press Bureau

KYIV - The Cabinet of Ministers approved a plan for economic development on March 3 that should give impetus to its effort to join the World Trade Organization and eventually find a spot in the European Union.

The program, called "Reforms for Prosperity," is a 105-page, five-part plan developed from the state of the nation address presented by President Leonid Kuchma to the Verkhovna Rada on February 22.

The program's aim is "to increase the economic independence of the citizenry and to promote entrepreneurial activity," said Minister of the Economy Serhii Tyhypko.

If fully carried out, it envisages an eventual 1.3-1.4-fold rise in real incomes for Ukrainians and an annual average increase of 6.5 percent in the country's gross domestic product beginning in 2002. For the fiscal year 2000 it forecasts a GDP increase of 1 to 2 percent.

Mr. Tyhypko said a major obstacle facing the program is the large foreign debt that Ukraine faces. "One of the main risks is the foreign debt. We are talking about its restructuring. If we fail to do that, it will hinder the fulfillment of the government's program," said Mr. Tyhypko.

The government, headed by Prime Minister Viktor Yuschenko, has imposed a deadline of March 15 to restructure foreign commercial debt of about $2.6 billion (U.S.) that it is currently unable to repay. Without agreement on a debt swap, Ukraine would have to default on many of the commercial loans that it has taken in recent years, which could leave it economically isolated and bankrupt.

Another risk, maintained Mr. Tyhypko, is that the plan, which foresees the liquidation of many privileges enjoyed by government workers, will not find support in the Verkhovna Rada, which must endorse it.

If it does pass political muster, the economy minister said the program would help Ukraine join the World Trade Organization because many of its goals meet WTO requirements for membership. In turn, that would help pave the way for Ukraine to achieve associate membership in the European Union.

Mr. Tyhypko indicated that the program would assure deficit-free budgets, and even surpluses, for Ukraine, which would lead to repayment of wage and debt arrears, a radical reduction in the country's debt load and a stable currency. A longer term goal addressed in the plan is the eventual privatization of land and a resurgence of the agricultural sector.

One specific aspect of the plan announced by Mr. Tyhypko is the elimination of export quotas, which he said hinder the development of Ukraine's foreign trade. Ukraine has received much criticism - mostly from the European Union, which has called for the removal of quotas - for its control over the large domestic sunflower market and its regulations on how much can be exported.

The government set standards last year after an outcry from then Parliament Chairman Oleksander Tkachenko that Ukrainian-grown sunflower seeds were being sold to foreigners and then processed and returned for sale as oils at prices that undercut Ukraine's domestic production.

Because the economic plan has yet to be released officially, details remain scant. However, as outlined in President Kuchma's February 22 state of the nation address, the program should be extensive and far-reaching and set the country strongly on the path of free trade.

In his annual appearance before the Verkhovna Rada President Kuchma underscored that a keystone of Ukraine's economic policy must be to join the process of globalization that is now occurring around the world.

"We can and must become a new Ukrainian nation, which will synthesize the best traditions of the nation while moving in step with global processes," stated President Kuchma.

For Ukraine to recover its economic losses of the last decade and to position itself at the center of the world economic order, the president declared that a goal be set of annual GDP increases of between 6 percent and 7 percent within five years.

He called for giving entrepreneurs a much freer hand in developing business and on the government to step to the background.

"Our common efforts must be directed in a totally different direction so that economic independence, even at this early stage, unchains business initiatives to bring forth a vanguard of radical changes and a new generation of people who have the ability to think and act in a modern way, in a market way," President Kuchma underscored.

The president called for the reinvigoration of the Higher Economic Council, a tripartite advisory board that includes members of the executive and legislative branches. He also pointed to the need for extensive administrative reforms and the streamlining of a bureaucracy who members' average age is far too high.

He called for resolute steps in making the economy more transparent and for the legalization of the shadow economy, as well as the return of Ukrainian capital from abroad.

Although President Kuchma did not go so far as to suggest an amnesty for individuals who have illegally moved capital out of the country, he said that instruments must developed to allow the return of capital in a legal manner so that it might help resuscitate the Ukrainian economy.

The president said that transparency is badly needed in the privatization process now under way, as well as in the banking system and the energy sector, and would have to be assured for a soon-to-be-developed land market.

"Corruption and crime are today the main causes behind economic hardships and social tension," said Mr. Kuchma. He emphasized that corruption is not a result of the free market, but the outcome of the slow pace, inconsistency and incompleteness of the reform process.

The Cabinet's economic reform plan will go to the Parliament on March 10 and is scheduled for preliminary debate the following week.

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