Anatoly KINAKH: “New parliament should not be a pretext for changing the government”
“Despite all the rosy macroeconomic indices, including positive changes in the structure of Ukrainian exports the first- quarter budget remained unfulfilled. Not so encouraging are privatization earnings which, although considered outside the budget, still support the latter in one way or another. Are you going to sequester expenditures? In what case will you do so?”
“I want to point out that budgetary revenues in the first quarter of this year exceeded those of last year. In other words, there is undoubtedly some progress in this matter. Yet, there really are some problems with current fulfillment of the budget. They were mostly caused by the quality of the budget adopted by the previous parliament, which withdrew Article 48 from the budget law, the article that made it possible to balance the revenues and the expenditures targeted at the social security of the population. This caused quite a serious budgetary disbalance. Besides, what also affected the fulfillment of our budget was a worsened world economic situation, especially for Ukrainian exporters. World market prices for metallurgical products are now the lowest in the past ten years. To protect this sector from heavy losses, the government deliberately chose to freeze output in metallurgy. This output registered an 8% drop against the first quarter of the last year. This allowed preserving resources and avoiding losses caused by supplying products at very low prices. Of course, this affected budget fulfillment in the first quarter. Yet, despite this, there are good dynamics, 4.3% in gross domestic product growth. It is positive that this pace continues due to continuous growth in such sectors as the mechanical engineering, processing, food, and wood-processing industries. No doubt, small privatization earnings have also made themselves felt. But we had predicted this. The government took into account in time, when the budget was still being drafted, that investors would take a wait-and-see attitude in the first quarter, i.e., in the conditions of intense political rivalry and a certain instability. Auctioning off strategic facilities under such conditions means selling them cheaply, so the government somewhat slowed down this process in order to secure a normal price later. Nevertheless, there is no question of sequester in this situation. The government is doing its best to have budget problems solved by creating more favorable conditions for the industries that work transparently rather than by putting pressure on them. In addition, the 2002 budget revenues do not correspond with the scale of the Ukrainian economy or the depth of the macroeconomic problems to be solved. Official statistics say that per capita budget revenues in Ukraine are $200. This is very little in comparison with European countries. Even in the former Soviet states the situation is better. This index is $278 in Kazakhstan, about $310 in Belarus, and about $550 in Russia. It follows from this that a considerable part of Ukraine’s material and financial resources is outside the budget and the transparent economy. This assigns the government and other authorities the task to do their utmost to cut the shadow sphere by laying down reasonable rules of the game and promoting transparent market competition. Whatever GDP growth rates we have, we will never have a budget in line with the scale of our economy unless we solve this problem. And the future of Ukraine depends precisely on this.”
“Still, under what circumstances would the government be forced to opt for sequester? What must happen to necessitate this?”
“First of all, a decision like this could be caused by radical changes in the foreign market situation. But we hope (there already are some indicators) that the world market recession is going to end by midyear. The world economy is expected to grow, which allows us to forecast that Ukrainian export products will be increasingly in demand. I hope this demand will be met. Another negative factor that could compel us to take such a step is an aggravated domestic political situation in Ukraine. I strongly hope things won’t go that far and the parliament will form a viable majority that wishes to and can work in the interests of society and state and is aware that Ukraine cannot possibly afford to postpone creating the conditions for political stability and cooperation between the branches of government. I am convinced that a viable majority is also a firm guarantee for budget fulfillment. But as soon as we follow again the line of political confrontation, the economy will receive alarming signals and unfavorable conditions for development, which will undoubtedly impact on the budget. I hope for a positive option... So I repeat: the government does not intend to propose a budgetary sequester, although we are sure to suggest (as part of a package of other urgent bills before May 15) that parliament call off the crowd-pleasing decisions on social privileges made by its predecessor without any serious economic basis.”
“Budget problems proceed, to a large extent, from those of taxation. The Ministry of Finance is said to be drafting a new version of the Tax Code. Has it taken into account your comments that VAT ruins this country’s economy as well as criticism of many provisions by entrepreneurs?”
“Surely. We are now working on the Tax Code contents. Relying on proposals and feedback with taxpayers – businessmen, entrepreneurs, and industrialists – the government intends to redouble its efforts for the 2003 budget to be formed on the basis of a more perfect tax system. This is also the answer to the preceding question. I am very much for Verkhovna Rada passing a new Tax Code. But all will depend on the viability of the parliament. If the code is passed before the parliamentary recess, there is a chance that the budget will be based on a new code. But if parliament does nothing but distribute chairs and portfolios and settle scores, we will lose another year. Then we can forecast a further downtrend in the competitiveness of our economy. We must not enter the next year with our tax problems, so the government will make every effort to leave them in the past. I also want to remind you that, under the Constitution and the Budget Code, we must submit a draft budget resolution to the parliament before June 1 and Verkhovna Rada must discuss and adopt it no later than June 15. This is why the government plans to discuss the draft budget resolution on May 15.”
“Mr. Kasianov promised you in Moscow to lift VAT off the oil and gas being supplied to Ukraine. But is joining the Eurasian Economic Community (EAEC) too high a price for this? Ukraine has thus far refrained from doing so. What will be the procedure of the discussion, and will this not put an obstacle to this country’s integration with Europe?”
“I would like to note that Ukraine’s integration in the European and worldwide economic and political system is an irreversible process. This point need not be debated. We must all work to help the government concentrate its efforts to increase the competitiveness of our state, so that this integration serves the national interests of our country. Only then will we be able to count on our rightful place in the world community. And, of course, I want to reiterate: Ukraine and its government should pursue a pro-Ukrainian policy in all fields. This also means that, marching toward Europe, we must at the same time deepen cooperation with Russia. One should not put these two directions in opposition. What matters here first of all is whether they meet the national interests of Ukraine and the principles of equitable partnership and market competition. Addressing a EAEC summit in Almaty, I said Ukraine was ready for transparent and open cooperation with this entity. What assumes special importance and perspective, given the strategic location of our country between Europe and Asia, is transit of energy resources and formation of a modern transport infrastructure. As to membership, we must be guided not by emotional or even political considerations but primarily by strict and precise economic and political calculations based on our national interests. If this shows more pluses, we must undoubtedly make a positive decision. If minuses prevail, we must look for other options. All this also applies to the Eurasian economic space. I said this frankly to Mikhail Kasianov during our Moscow talks. When President Leonid Kuchma of Ukraine recently met his Russian counterpart Vladimir Putin in Odesa, he also pointed out precisely this approach by our country to EAEC membership. I think it is only on the basis of the ongoing calculations and analytical research that a certain decision can be made – without any economic or political pressure. I emphasize again: like any other independent state, Ukraine must perform its main function, namely, to defend its national – domestic, foreign, economic, and political – interests. The trouble is we still have to learn this. Ukraine has been very slow in forming the infrastructure of an independent state over the past ten years, so now we see how important it is to constantly improve the mechanism of formulating and defending our national interests. At the same time, I can assert that only in a politically stable state can an individual be sure that these interests are really defended. And there will be no political sensations in this matter. This should be a transparent process that both the government and society understand. When the question is of possible cooperation with EAEC, it should not be regarded as primitive trade: we lift the VAT and you join us. There should be an integrated approach that takes into account all factors, again proceeding from our national interests.”
“The government has recently signed a memorandum with large Russian oil traders now supplying oil to Ukraine. This is undoubtedly a positive thing, for it will help deliver crude oil to most Ukrainian refineries now belonging to Russian companies. But does the government take into account the stand of Ukrainian retail market entrepreneurs who are discontented that this market has been monopolized by the Russian companies with which our entrepreneurs are unable to compete?”
“The memorandum you mentioned expounds our experience of cooperation between government and business. I am satisfied that we managed to sign it. This step is indispensable for creating the conditions of mutual responsibility and partnership. The point is not in the national affiliation of one company or another. The memorandum was signed not only by Russian oil companies, including TNK and Lukoil, but also by Kazakhoil and representatives of the Ukrainian oil-refining business. We have thus laid down the same rules of the game for systematic business on this market, for those who have come to work in Ukraine seriously and for the long term. We can note even now that the memorandum brought positive results in the first quarter. In spite of quite tough measures to strengthen taxpaying discipline, which could, under certain conditions, unbalance the oil market, gasoline prices showed a 5-6% drop in the first quarter. This occurred thanks to market saturation and transparent competition. This benefited everybody: the economy, the budget, the economic entities, and the consumers.”
“The president has already said that only those ministers who will sit in the parliament will be replaced. Do you think it possible that they will be replaced (by a presidential decree rather than on the basis of inter- bloc agreements) by representatives of Our Ukraine, which will thus meet the requirement of forming a coalition government and a parliamentary majority on the basis of the two leading parliamentary blocs?”
“I would like to remind you again that under the Constitution the election of a new parliament cannot be a pretext for changing the government which the Constitution requires be confirmed in office for the period of the presidential mandate. But, aware that power as a whole cannot function effectively without mutual understanding of all its branches, that it is impossible to solve, without this, any of the many problems that hold back economic development, and wage a war on want, the government is prepared for cooperation with the parliament. Yet, I will never agree that the government of Ukraine should be a bargaining chip in any kind of wrangling over parliamentary or government portfolios. The government will consider cooperation with the parliament, first of all, from the standpoint of whether the two sides will join efforts in order to solve nationwide problems. This kind of cooperation is possible with all segments of the parliamentary spectrum in all directions, especially where a realistic and professionally-justified approach prevails. Moreover, we will not object if there is a need to make decisions to reinforce the government and parliament at the expense of changes in the government. But this will be done not on the principle of bargaining and distributing portfolios but on the basis of a common search for the best decisions, including cadre ones, aimed at a more effective performance of the bodies of authority. I am sure parliament also has a lot of pragmatic cooperation-minded deputies who will make it possible to carry out such work.”
