Former Deputy Premier, currently People’s Deputy of Ukraine and president of the Ukrainian Union of Industrialists and Entrepreneurs, Anatoly Kinakh stood in front of the conference table and the watch behind his back seemed as a reminder that the time is against us.
“Don’t you think that the state authorities are wandering in the dark and seem to find obstacles wherever they go?”
“I think that we are not finding them but creating them. How else can you view the presidential decrees On Responsibility to State and Budget Funds and On Some VAT Features. Both decrees show that the government prefers fiscal and coercive methods of management to economic ones. Of course, in view of the rising budget deficit and payments crisis, strict measures are necessary in order to reduce the share of the shadow economy. But these measures should be based upon complex legal mechanisms, considering the present financial situation in the enterprises along with their influence upon privatization and investment conditions. This was and remains the main condition for working out the decree. The Union’s suggestions regarding this matter are addressed to the President of Ukraine. Businessmen say in their letters to the Union, that collecting taxes this way will impact negatively on the investment climate in Ukraine. Paying VAT in advance may also worsen it, because when the enterprises lack adequate credit resources, this measure sucks the money out of their turnover funds.”
Many experts consider your team to be a good base for participating in the future government. It is possible that you will return. What would you do first?
The permanent government crisis, which has been ongoing throughout the period of independence, the lack of constructive and professional cooperation among the branches of government have all lacked system, creating a lack of continuity and coordination in our work. And thus we lack both social and economic reserves. Under these conditions we also fail to make use of our society’s huge intellectual potential. The government has to solve very complicated tasks in a short period. The coexistence of a relatively stable national currency and crisis in the real economy show that the Ukrainian economy is very unbalanced. With low inflation (3% in the first four months), the interest rate of the NBU remains at 41% and hence commercial banks grant loans only at 60% annual interest. At the same time the profitability of domestic bonds is 47-49%.
We have to begin solving the problems at the root of the crisis in our economy. I would start with reducing deductions to the salary fund, which is currently close to 48%. Such a high percentage causes and fuels the shadow sector in the economy.
Does this also have something to do with the low purchasing ability of the population?
Definitely. And then a chain reaction begins: low paying ability, lack of motivation for manufacturers, and thus absence of competition. In 1999 we need to reduce deductions from the salary fund down to 35-40%. Elimination of the income tax on exports could be a second very important step. This way we would balance country’s exports and enable Ukrainian exporters to survive.
We cannot close our eyes to the payments crisis. Loan debt already exceeds Hr100 billion, compared to the last year’s GDP of Hr 92.5 billion. Barter operations constitute 41% of all deals. No other CIS country has such problems.
Ukraine’s GDP structure shows all the signs of a raw material colonial-type economy. Ecologically unsafe industry branches along with those, which are energy and raw material intensive constitute over 50% of GDP.
The Union used to have some disagreements with the NBU. You managed to solve them in part when you became the Union’s head. But now you are unsatisfied with the interest rate over again.
We still have some disagreements with the National Bank. The problem is that NBU’s macroeconomic stabilization program and its fiscal policy are not connected with the real state of the economy. They also do not include working out effective financial, tax, investment, and other regulations to foster competitiveness in the Ukrainian economy.
No, we are not satisfied with the interest rate. As you remember it was 16% in November 1997. Then it was raised to 35% and then 44%. Now, after 7 months, inflation is low, but the rate is still 41%.
Today NBU pushes commercial banks to purchase domestic bonds. Why doesn’t it prod them to invest money in the real economy?
Which branches do you think we should finance and develop first?
We need to develop competitive sectors, which secure speedy capital turnover, such as light industry, agriculture, and the food industry. These sectors need well thought out state support programs. Unfortunately, there is a joke, which says that Ukraine has the first place in the world in programs per person.







