Credits could slip on oil
By setting a new 17% rate for the export duty on the seed of some oil bearing crops Verkhovna Rada seems be defying the IMF. The fund had continually and unsuccessfully demanded cutting the duty on sunflower from 23% to 10% as a condition for renewing loans to Ukraine under the EFF (Extended Fund Facility) program.
However, in spite of the duty, in March 2001 Ukraine exported sunflower seeds to a total value of $24,430,000, which is four times more than last March. at the same time, vegetable oil exports in March 2001 has grown 36% compared to March 2000, coming to 49,081 tons totaling $19,700,000.
During recent years Ukraine forfeited two significant components of its strategic exports, edible grain and sugar. Only sunflower seed oil is left, which can be regarded as the proverbial straw which must be grasped to raise the resource base of the domestic agricultural complex (taking into consideration the difficult situation on the internal consumer market). The figures mentioned are evidence that the 23% duty had played its role.
However, the International Monetary Fund believes that the 23% export duty on sunflower seeds is impeding reforms in Ukraine, its joining the World Trade Organization, and integration into the European Union.
In the opinion of IMF experts, this duty resulted in an opportunity for oil and fat processing facilities to increase their revenues at the by cost of agricultural workers’ living standards. “This ability of powerful groups to bend the tax system to their advantage at the expense of weaker members of society is an important obstacle to reforms in Ukraine,” stresses the IMF statement published on March 30, 2001. “Restricting exports does not make sense when Ukraine is trying to mobilize foreign financial support,” reads the document which reflects the IMF reaction on ratifying the law in its first reading.
On the other hand, Verkhovna Rada considers that this time the IMF is acting not to Ukraine’s behalf but to benefit its competitors on the sunflower oil market, completely ignoring the axiom on the expediency of exporting finished products rather than raw materials. Deputy Chairman of the Kharkiv Oblast State Administration Mykola Bezuhly even thought it necessary to preserve the 23% export duty on sunflower seeds. In his opinion, canceling this duty could turn Ukraine into a “raw materials appendix for Europe” and will result in exporting raw materials and importing ready sunflower oil. In this situation, the vice governor believes, Ukrainian sunflower oil extraction plants will suffer again from a lack of raw materials.
Simultaneously, in the IMF Memorandum the previous Ukrainian government undertook commitments to lower the export duty rates on sunflower seeds from 23% to 10% in December 2000, later postponing this to the beginning of the year 2001. Now when Ukraine has a new government with a somewhat different view on the relationship with the IMF, ratifying the 17% duty looks like a serious concession and a step forward to meet the partner’s demands. The question is whether this step will be evaluated as such or not.
