Ukraine Plans Pick Up In Economic-Reform Pace
Destitute republic aims to secure $700 million international loan
AFTER nearly three years of marking time, Ukraine is poised to take a crucial step toward a market economy - and its leaders say there is no time to waste.
With a drought-stricken harvest behind it and winter looming, officials here say the republic is near bankruptcy. The government's efforts are directed at negotiating Ukraine's first loan from the International Monetary Fund - $700 million for an economic-stabilization program.
Sources close to the talks with IMF officials say Prime Minister Vitaly Masol, who is expected this week to sign a letter of intent with the IMF, may press to extend deadlines on some reforms, including budget-deficit reductions and freeing the foreign-exchange rate of the currency coupon.
But President Leonid Kuchma announced recently that he will present to the Communist-dominated parliament on Oct. 4 a ``radical plan of action'' that will include concentrating more power in the president's hands. ``I'm going to tell parliament that we need radical economic reforms because we have already frittered away nearly everything. And in order to conduct them, we need political reforms as well,'' President Kuchma told the 27 regional council heads on Friday.
``The IMF money is very significant for Ukraine,'' one Kiev-based Western diplomat said. ``It's one of the major bellwethers that shows the world that Ukraine is serious about reform.''
To get serious about reform, Kuchma says he needs more personal power. ``If a strong executive branch does not materialize, there will be no changes in Ukraine.... The longer we drag out reforms, the worse it will be for us later,'' he warned. ``We must hurry.... Ukraine has great potential, but first there must be unpopular measures.''
If Ukraine does secure the IMF loan, which could happen before November, it will force the conservative leadership to adhere to a comprehensive reform package and will open the door to $4 billion in aid the Group of Seven nations pledged in June.
Kiev and other cities have acquired some trappings of a market economy - Western goods are easier to find, and European-style cafes and restaurants dot streets. But despite these superficial symbols, the leadership has done little to reform the economy since the 1991 Soviet Union breakup.
Privatization has barely made a dent in the vast state sector. In the absence of a stable currency, Ukrainians use a temporary coupon, while the full-fledged hryvna remains in storage - printed but not introduced.
Inflation, which was brought to a monthly low of 2.1 percent in July through strict control of the money supply, has worsened. The central bank has predicted inflation of 50 percent to 60 percent in October because of recent credits to the farm sector and to cover a budget deficit of 20 percent of gross domestic product. The coupon exchange rate, meanwhile, has plummeted in two weeks from 50,000 per dollar to 70,000.
ON the social level, Ukraine has the highest hidden unemployment, the lowest minimum wage, and one of the greatest poverty rates in central and eastern Europe, according to an International Labor Organization report presented this week.
Energy-poor Ukraine owes Russia and Turkmenistan $2.8 billion for oil and gas supplies, and energy officials in Kiev complain that there is no money to pay these debts. Another telling factor in Ukraine's economic crisis is a cholera epidemic resulting from unclean water and poor health-care facilities and refrigeration.
Ukraine's snail-paced economic reform is even more noticeable when set against neighbors Russia, Belarus, and Moldova. They have launched some reform programs that include privatizing industry, freeing prices, and cutting budget spending. Each has also received loans from the World Bank and IMF.
Considering Ukraine's poor track record in economic reforms, some analysts say they doubt Ukraine's ability to follow through on promises. ``Giving financial assistance to Ukraine is like giving an alcoholic money when he's leaving the house to buy liquor,'' economist Viktor Pynzenyk says.
But a change of heart seems to be in the air. Most Ukrainian leaders, including socialist parliament chairman Olexander Moroz, have endorsed market reforms as the only way to stave off economic collapse and attract Western funds.
``Ukraine definitely wants to sign [the loan agreement] before the IMF meets in Madrid [in early October], and it will sign,'' says economic minister Roman Shpek, the head of the negotiating team with the IMF.
``We need to be able to consult with financial circles. Also, the IMF has promised to talk to G-7 countries [that] can give Ukraine credits and reschedule debts,'' he says, adding that Kiev was seeking $600 million in financing to implement economic-reform policies in the IMF plan.