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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

IMF disappointed with Pustovoitenko government

14 December, 1999 - 00:00

“I am very disappointed with the Ukrainian government’s decision made in the past few weeks,” said John Odling-Smee, director of the Second European Department of the International Monetary Fund, addressing the final session of the international conference on structural reforms in Ukraine.

“Ukraine’s key problem,” he said, “is that all groups of economic interests are well-organized and resist economic development.”

According to Mr. Odling-Smee, what is needed is extraordinary political will to offer resistance to these groups. He simultaneously pointed out that the Ukrainian government’s past failures were often connected primarily with the government’s inefficiency and inability to enlist broad support in Parliament. Very often, the IMF representative believes, Cabinet ministers even failed to come to terms among themselves.

Such assessments of governmental performance prevailed in the speeches of conference participants. National Bank Governor Viktor Yushchenko, speaking to journalists before the final session, also noted that the economy of Ukraine is too dependent on politics, which is a major problem. He pointed out that the serious restructuring, so critically needed in various economic sectors, is impossible without a “political cushion,” i.e., a political ally, for such reforms.

Will Valery Pustovoitenko be able to rally such a political alliance around himself? The conference often heard a negative answer. Not by accident did Mr. Odling-Smee quote Mr. Yushchenko as saying that for economic strategy to be successful, the government itself must favor reform. Then he continued: “The government should consist of people who have market instincts and are not used to interfering in the economy.” According to Mr. Odling-Smee, the Ukrainian government should revise its functions in the course of structural reforms: it should promote economic development, rather than control and interfere in the economy. The strategy of the government, in his opinion, should lie in paring down its own role.

Meanwhile, conference speeches and perhaps the IMF’s own analysis convinced the latter that the Ukrainian government too often and pointlessly interferes in the economy. Odling-Smee cited examples: the government forced AvtoZAZ-Daewoo and Naftohaz Ukrayiny to sell their products at prices lower than the cost of production and compelled commercial banks to issue loans at a interest lower than market rates. Grain export restrictions were also viewed negatively.

These appraisals seem to boil down to a damning indictment of the Pustovoitenko government, largely held responsible for “the collapse of reforms in Ukraine, which is in fact the cause of the sufferings borne by the Ukrainian people,” in Mr. Odling-Smee’s words.

Meanwhile, acting Deputy Premier Serhiy Tyhypko as cochairman of the conference demonstrated his “market expansion,” by demanding compromises not to resorted to in the budget-approval process (he would even accept a governmental crisis in order to take a tough stand on the budget), the cancellation of all privileges, barter settlements, and zero VAT for energy resources, and the budget support for money losing sectors and enterprises in order to ensure support to small and middle sized businesses and to continue privatization. He claimed Ukrainian agriculture could well become a profitable sector. Moreover, he pressed for structural reform, first of all, in public administration.

Chairman of the parliamentary Finances and Banking Committee Valery Alioshyn noted that the premier’s post should be occupied not by someone who considers himself a reformer but by a person considered one by others, hinting in all probability that Mr. Tyhypko is the reformer. Presidential aide Volodymyr Lytvytsky reported that, while receiving Mr. Odling-Smee, Leonid Kuchma stated that there is no other person in Ukraine more interested in successful reforms than the President. Does this mean that, should Verkhovna Rada reject Mr. Pustovoitenko as Prime Minister, Mr. Kuchma will put forward a person with a clearly market-oriented image as the next candidate?

Incidentally. Answering the question if the IMF could resume the EFF funding of Ukraine, Mr. Odling-Smee said, “I do not think this question can be answered so fast. We will have to work more, our expert team will be cooperating with your government. We must take a closer look at the reforms being suggested and planned to be carried out.”

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