The Cost of Parliamentary Paralysis
On November 4 the International Center for Policy Research (ICPR) announced it was revising its outlook for Ukraine’s economic development in 2003-2004. ICPR experts believe the economy is faltering more than they earlier forecast. They pointed in particular to the gross domestic product having increased 4.3%, not 4.5%, this year, with the respective figures expected to be 3.5% rather than 5% in 2003, and 4% vs. 5.5% in 2004. It will be noted that the Ministry of the Economy earlier forecast that the economy will grow 4.8% by the end of 2003 at a conservative estimate and 6% at an optimistic one.
The ICPR puts its pessimism down to the negative impact of political factors and the expected fall in domestic demand for goods and services. The center’s chief economist Tetiana Sytnyk thinks that Verkhovna Rada’s inability to form a viable majority will significantly slow economic reforms in the next two years. The experts also note declining public trust in the authorities, which means that the government will have no political capital to implement unpopular economic decisions. This raises the probability that economically nonviable but popular laws will be passed.
The International Center for Policy Research believes that the growing political risks are certain to cause a decline in foreign and domestic investment as well as upset public consumer expectations. A poll of Ukrainian consumers (1000 individuals aged 15 to 59) revealed growing popular inflationary expectations, the fear of unemployment and a deteriorated material condition. ICPR economist Andriy Blinov is convinced that these public fears are not unfounded. In his opinion, this country’s financial stability could be undermined by direct NBU loans to finance the state budget, sanctions against Ukraine from FATF (an organization monitoring money laundering), and the slower pace of worldwide economic growth caused by international terrorism.
Still, the center’s experts hope that the pessimistic scenario they have outlined will not materialize. This will be possible if Verkhovna Rada, the President, and the Cabinet of Ministers manage to join forces to draft economic laws. In this case the economy will show faster growth. “With the entrepreneurial initiative in Ukraine strong, all we need is the adoption of crucial laws to keep the Ukrainian economy growing at the rates of 2000-2001,” the ICPR outlook says. At the same time, the center admits a more pessimistic scenario in case of Ukraine’s international isolation over confirmed facts of its violations of UN sanctions against Iraq or parliamentary gridlock due to the standoff between the opposition and those in power.
The picture painted by the independent experts is far from rosy. Yet, they clearly outlined the conditions under which this country will be able to make a rapid economic recovery. What is mainly slowing Ukraine’s further development is the low quality of Ukrainian politicians’ performance. It took the parliament publicly elected in the spring of this year only six months to finally disappoint not only the voters but also businesspeople. Unfortunately, the executive branch also failed to play a unifying role.
It is difficult to forecast the further course of the political confrontation and the situation in the parliament. This means investors and entrepreneurs will prepare for a worst case scenario. The ICPR outlook should provide food for thought to the politicians of all camps. Should things fail to improve by the end of the year, economic growth could fall victim to the political situation, and this would hurt everybody, irrespective of their claims to cabinet portfolios.
