U.S. treasury secretary underlines need for Kyiv to abide by 'common principles' (07/21/02)

U.S. treasury secretary underlines need for Kyiv to abide by 'common principles'

by Roman Woronowycz
Kyiv Press Bureau

KYIV - U.S. Treasury Secretary Paul O'Neill, during his first visit to Ukraine on July 12-14, told Ukrainian leaders that they need to make the Ukrainian economy alluring in order to attract foreign capital.

"Capital is a coward. Money is more likely to go where it is treated well," explained Mr. O'Neill during a major presentation on global economic realities to U.S. and Ukrainian businessmen on July 12 in Kyiv. (see page 3 for excerpts.)

The U.S. official was on a tour of Eastern Europe and Central Asia that also included stops in Bishkek, Kyrgyzstan; Tashkent, Uzbekistan; and Tbilisi, Georgia.

Mr. O'Neill, who also met with President Leonid Kuchma and Prime Minister Anatolii Kinakh in Kyiv before traveling to Donetsk, the country's industrial heartland, explained that while working in the private sector as a chief executive officer at Alcoa Aluminum he didn't bother to even consider investing in countries where the rule of law, good corporate governance and enforcement of contracts was doubtful.

"Frankly, I did not spend much time looking at places where this did not exist," he said.

The treasury secretary told Ukrainian leaders and businessmen that they must enforce and uphold basic good business practices and assure a level playing field for all businesspersons if they expect increased foreign investment in the country. He suggested that major problems that certain U.S. companies had confronted while doing business in Ukraine in the last years had dampened investment interest among Americans.

"When there are famous or notorious cases involving a company that carries a U.S. flag the word travels fast to other potential investors," explained Mr. O'Neill.

Mr. O'Neill emphasized that Ukraine needs to abide by three "common principles," to become a successful and affluent democracy. First, he explained, the country must learn to govern justly, to enforce laws and contracts, respect human rights and property rights, and fight corruption. He said that an anti-money laundering bill currently making its way through Parliament is a good example of the type of legislation needed in Ukraine.

Also, Ukraine "must encourage and protect economic freedom," stated Mr. O'Neill, who praised Kyiv for working diligently for the creation and growth of small and medium-size businesses through deregulation and reduced inspections.

Finally, he said, the government must invest in people, which means, "targeting government spending where it can make the greatest difference for people, thereby enabling them to achieve their potential in the free enterprise system." Mr. O'Neill named clean water, primary education and health care as important areas that government must address. He underscored the need to fight the HIV/AIDs problem in Ukraine, which he stated had already engulfed 1.29 percent of the population.

Mr. O'Neill also addressed Ukraine's attempts to obtain market economy status from the United States which would be a major step in its effort to obtain membership in the World Trade Organization. He assured Kyiv that the U.S. wants WTO membership for as many countries as possible in order to make the global economy run as smoothly as possible, and he underscored that if U.S. businessmen working in Ukraine pushed the U.S. to recognize Ukraine's market economy status it would be strong evidence of the country's reform progress and give a major impetus to the effort. Mr. O'Neill explained that some countries had actually achieved the status in this manner.

However, during a press conference later that day, the treasury secretary noted that major investors in Ukraine, such as the U.S.-based Cargill Industries, continue to have unreasonable and unneeded problems. He also said the Ukrainian government must resolve the issue of reimbursement of valued-added tax (VAT) from imports.

During a meeting with President Kuchma, Mr. O'Neill expressed support for the decision by Ukraine to develop an international consortium to manage the country's gas pipeline in association with Russia and Germany. He also hailed recent economic reforms and the economic upswing of the last years, reported Interfax-Ukraine.

The U.S. treasury secretary also met with Prime Minister Kinakh, who told him that Kyiv's short-term goals are to continue to deepen structural economic reforms, form a modern domestic market, strengthen the rights of owners and investors, and develop the financial and banking sectors. The Ukrainian prime minister also noted the need to re-stimulate U.S.-Ukraine trade, which has dropped by $72.6 million in the last year to $447 million, with Ukrainian exports to the U.S. down by 9.2 percent to $195 million. U.S. direct investment in Ukraine was $763 million at the end of the first quarter of 2002, according to the Cabinet of Ministers.

Some of the downturn in Ukrainian exports is due to the U.S. embargo on certain Ukrainian goods, leveled after Washington failed to note improvements in inconsistencies in the country's intellectual property laws and practices, while another portion is the result of increased U.S. tariffs on steel, one of Ukraine's major foreign exports.

During his swing through Ukraine, Mr. O'Neill spent a little over a day in Donetsk where he stopped at a center for absued women and opened a new branch of the Micro Finance Bank, both of which receive U.S. financial support. He also visited the Cargill Sunflower Processing Plant and met with regional farmers.

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