U.S. official underscores importance of investment for transition economies (07/23/00)

U.S. official underscores importance of investment for transition economies

U.S. Department of State

WASHINGTON - Attracting private sector trade and investment is critical if Central and East European countries are to complete their transition "to free market prosperity and democracy," Assistant Secretary of State for Economic and Business Affairs E. Anthony Wayne told a congressional hearing on June 29.

While U.S. government assistance is important to the region, so is U.S. private sector involvement in their economies, he noted.

"Countries that have made the most progress toward free market institutions and good governance have attracted the most American and other foreign direct investment," Mr. Wayne pointed out in testimony before the Subcommittee on European Affairs of the Senate Committee on Foreign Relations.

Among problems that are common in the region are lack of transparency; bribery and corruption; a high level of criminal activity; problems with physical and institutional infrastructure; and incomplete privatization of state-owned entities, he said.

Mr. Wayne outlined the U.S. government's efforts to help countries in the region move towards free and open economies: encourage governments to ratify and implement the Organization for Economic Cooperation and Development's (OECD), the Anti-Bribery Convention, protect intellectual property rights and develop stronger legal systems; pursue bilateral investment treaties (BITs); and promote American commercial participation and good business practices.

"The European Union, as it pursues enlargement to include most of the countries of the region, shares many of our goals and seeks many of the same reforms," he said.

He also discussed specific initiatives designed to improve the investment and business climate in particular parts of the region, specifically Southeast Europe, Central Europe, Russia and Ukraine.

"When the State Department promotes economic reform and good governance in Central and Eastern Europe, we do so not only to help these countries, but to promote America's economic and national security interests," Mr. Wayne told the subcommittee.

Following are excerpts of his prepared testimony pertaining to Ukraine.

* * *

Perhaps no other country in the region has experienced such a large gap between economic performance and potential as Ukraine. Endowed with good natural resources, superb agricultural land, a well-educated population, ethnic peace and a strategic location in Europe, Ukraine was positioned to be one of the most successful of the former Soviet states in attracting the foreign investment needed to restructure its economy.

Yet at $55 per capita, Ukraine has one of the lowest rates of direct foreign investment in the region. The United States, with some $570 million out of $3 billion total, is the single largest source of foreign investment in Ukraine. These figures have both remained static for several years and are very small for a country of 50 million people with the resource base and economic potential of Ukraine. In contrast, the figures for Poland, a country of 40 million that aggressively embraced reform, are $5.1 billion and $30 billion.

The United States, together with the IMF, the World Bank and other donors, has consistently delivered the same message to Ukraine for the past five years: market economics can only be successful in Ukraine when the government reduces its role in the economy and gives freer reign to private enterprise. When this happens, we will begin to see investment rise again, and with rising investment will come sustained growth. Much of U.S. assistance, $200 million last year and $2 billion since independence, has been focused on helping Ukraine reform its economy and its governing institutions. We remain committed to making Ukraine's future a success and improving the climate for investment, and opening up Ukrainian markets is crucial to a positive outcome.

We are also seeking ways to support the reform efforts of Prime Minister Viktor Yuschenko's government - leveraging resources and cooperating with other international donors whenever possible. USAID and other agencies continue to target economic reforms, privatization efforts, private sector development (small and medium enterprises) and civil society for crucial assistance.

As I have said, U.S. investors are the single largest source of foreign investment in Ukraine. Their problems, both specific and general, are a regular agenda item in all high-level bilateral meetings, most recently during President Bill Clinton's trip to Kyiv on June 5. We have been pleased with the more business-friendly policies of the Yuschenko government. Investors report they have encountered a more cooperative, businesslike attitude when dealing with officials under the new government.

We remain concerned, however, about U.S. investor problems that remain unresolved, and more generally about Ukraine's poor investment climate and slow pace of economic reform. In addition to resolving the investment disputes, we have urged Ukraine's government to take specific steps to improve its investment climate, including instituting more transparent procurement and licensing requirements, implementing regulatory reform, improving protection of shareholder rights, improving enforcement of judicial decisions, and enforcing a strong code of ethics.

Ukraine has a reputation as a difficult place to do business. In its "Corruption Perceptions" survey of 85 countries, Transparency International ranked Ukraine 69th. Corruption is a major obstacle to genuine reform and long-term economic recovery in Ukraine, Russia and, indeed, throughout the former Soviet Union. Again, we have and will continue to provide assistance in this area. However, it is the responsibility of Ukraine's government to tackle this problem, through deregulation, legal reform and greater transparency.

| Home Page |