Occasionally something still happens here that by virtue
of its outrageousness, stupidity, and/or gross venality, still surprises
me. At a time when international financial institutions are in a quandary
about whether to keep Ukraine afloat with loans, which (given current economic
policies) no one has more than the slimmest hope can ever be repaid, and
when most foreign investors (in the face of a business climate drawing
parallels with the meteorology of Antarctica) have long moved on to warmer
climes, President Kuchma has issued a directive to ban 37 firms with foreign
investment from engaging in “international economic activity.” These firms
have been operating under a special privileged customs regime allowing
them to make a great deal of money and giving them advantages over other
firms. Unfair? Probably, but then what else is new in Ukraine?
The first problem is that the privileges were granted foreign
investors (in order to try to attract much-needed foreign investment) by
none other than Prime Minister Leonid Kuchma. Although many Ukrainian politicians
and their cronies in “business” may be unaware of it, in most of the world
there is such a thing as business ethics, one tenet of which is that people
keep their word; otherwise you simply cannot do business with them. The
recent decision is vivid demonstration to one and all that neither Ukraine
nor its current President can be trusted to keep their word, at least when
it comes to a situation likely to impact on the bank accounts of the politically
connected. Even the most reckless investor will never consider doing business
with that kind of partner, which means investment will not come; without
investment, new wealth will not be created locally, which means the country
will ultimately wind up even poorer than it is. The most common comment
from Ukraine’s business community is “no comment.”
The second big problem is that what the President signed
is not just a removal of privileges but a hit list. To paraphrase one Western
study, the Ukraine, like Russia, is a world where virtually nobody pays
anybody on time, where significant obligations are never met at all, and
where most settlements are in the form of barter or mutual write-offs.
Thus, many firms get paid for only a fraction of what they provide and
that fraction in the form of goods that maybe they can sell or trade to
somebody else. For anyone to get money, they need to sell some of what
they get from barter, and that usually means selling someplace with more
disposable cash in the economy than here. Banning a firm from “foreign
economic activity” means cutting them off from cash, and in business this
means a death sentence.
The interview with Kyiv World Bank representative Gregory
Jedrzejczak in this issue predated the latest decree, but it shows some
of the frustration those who are committing to helping Ukraine face. Consider
his words: “It is practically impossible to start a private business in
Ukraine. If you don’t go underground, you either get killed or start paying
endless bribes. And your tax inspectorates are the key weapon to destroy
one’s business rival.” Well, if one fails to count the President.






