Anatoly KINAKH: “It’s never been this bad”
On July 5 the Ukrainian Association of Industrialists and Entrepreneurs Board in Kyiv adopted the organization’s program guidelines for 2000-2002 to attract investment. In addition, those present made a brief analysis of the current economic situation which does not seem very encouraging, despite the Cabinet’s optimistic assurances.
UAIE President Anatoly Kinakh shared his ideas on the subject with The Day.
The Day: What parameters of the Ukrainian economy seem most alarming to the industrialists and businessmen?
A.K.: The situation now cannot be described unequivocally. The government propagates positive macroeconomic indices: 5.4% GDP and 10% industrial output growth over the past five months. However, the economy’s qualitative characteristics present a somewhat different picture. Over the five months inflation has reached 14.4%, while the same period last year showed 8.5%. And the number of enterprises in the red is alarmingly higher — from 40 to 50%. In the enterprises, the situation is even worse: 63%. Add here UAH 7.3 billion worth of losses. And the cost of accounts payable and receivable is increasing sharply: 15% in terms of trade liabilities, as of June 1, worth UAH 263.5 billion, which is about twice Ukraine’s annual GDP. It has never been this bad. And the accounts receivable are mounting, reaching almost UAH 190 billion. Also, reducing the share of barter deals by 15%, described as remedy for the payment crisis, only served to aggravate the situation. Obviously, banning offset, trade schemes, and bill turnover did not work.
Another alarming aspect is that Ukraine increasingly relies on energy- and raw-material-consuming industries. While last year our metallurgical, chemical, and thermal energy sectors accounted for some 57% of the economy, this year it is 59%. Considering our energy dependence, this implies growing political dependence.
Simultaneously, the state is to blame for the payments crisis. At the start of the year, budget liabilities in terms of GDP payments due taxpayers amounted to UAH 2.2 billion. Five months later, it rose by 700 million. This shows that the state is using budget revenues not by expanding the tax base or providing favorable business conditions, but by further scooping out enterprises’ current assets.
The Day: Do you expect the new Tax Code, currently drafted at the Verkhovna Rada, to improve the situation?
A.K.: Regrettably, the draft was not coordinated with UAIE or with the authors of the alternative drafts from among the lawmakers. Practically all Verkhovna Rada committees take a dim view of the Cabinet draft. We object to the rate of lowering the VAT. We believe that it should be reduced by 15% already in 2001. And we are seriously concerned about the attempt to institute the real estate tax without analyzing in detail all of its consequences. In addition, the Tax Code does not invalidate Card Catalogue No. 2 and the right of unconditional write-offs. Also, the attempt to introduce settlement methods of determining tax payments. Considering the poor quality of the draft Tax Code, but also considering the pressing need to have it in effect, we proposed adopting it in the first reading before the recess. To overcome problems in working out the 2001 budget bill, we must enact a law defining the tax rates for this year, thus allowing the government to deal with the budget while Parliament straightens out the Tax Code.
The Day: The board meeting also discussed problems in the fuel-energy sector.
A.K.: We did. It was stated that executive branch lacks a systematic approach, acting chaotically trying to solve these problems in a hands-on fashion. In doing so they ignore the actual socioeconomic situation, objective economic laws, and international experience.
All this serves to aggravate the crisis. In fact, two crises have emerged because of the absence of a national policy in this domain, external and internal ones. The former is marked by soaring energy payment liabilities that are considerably higher than at any time in previous years. The latter demonstrates Ukraine’s increasing dependence on energy imports. Russia now has a full-fledged monopoly on the CIS natural gas market, using among other sources, energy deposits in Turkmenistan, Uzbekistan, and Kazakhstan. The Ukrainian economy will have to reckon with a very tough monopoly. Gas supply terms and conditions (proposed by Itera Co. in the first place) are extremely burdensome for our enterprises. 1,000 cu. meters of gas at $45 on the border (allowing for VAT and transportation costs) turns into $63-65 in terms of bank money.
This will sharply reduce Ukrainian competitiveness; most importantly, Ukrainian businesses just cannot afford such prices.
However, rather than seek a middle course with Russia (and not only that country) and take into account Ukraine’s transit capacities, the government stages situational ad-libs in an attempt to settle the domestic crisis. We insist on discussing all these issues at the highest level and in the immediate future. In addition, UAIE has asked President Kuchma to postpone the signing the law On Changes in the Law of Ukraine On the Energy Industry setting forth only monetary payments on the energy market, until a number of measures to combat the crisis proposed by us have been carried out. I must say the President treated the problem with understanding and agreed to discuss it shortly with Ukrainian industrialists and entrepreneurs.
