Despite the current leadership's inconsistent and spineless modus
operandi, Ukraine's status as a polity undertaking economic reforms is
still unchallenged. Its creditors, however, are increasingly often faced
with the difficult choice of helping this country or not in its progress
toward a market economy. The problem is whether or not to grant a loan
and if so what for.
The constant presence of IMF experts seems an attempt to make Ukraine
understand that it is getting loans not only to retain its sociopolitical
stability and secure a degree of social protection to its citizens struggling
to survive, but also encourage further reforms. At least this was what
Valery Lytvytsky, Presidential Aide on the economy said when asked by
The Day's journalist about the reasons for upholding IMF's cooperation
with a government that was not "exactly sure of its own stand." Mr. Lytvytsky
was convinced that, without IMF's help certain countries gripped by financial
crises, millions would have starved to death all over the world. This fact
alone fully justifies what he called the fund's "tolerance."
At the same time, independent experts tend to regard this donor aid
in different terms. Clifford Gaddy, of the Brookings Institution, and Barry
Ickes, of Pennsylvania University, believe that an economy of our type
has shown no progress in moving toward a market pattern. "From everything
we see, it is moving fast, in a direction opposite to the market," they
say. And they go on, "We believe that the truth is the direct opposite;
loans provided on a top priority basis will support their virtual reality
economy which is not a market one by its very essence, and whose ineffectiveness
guarantees further economic decline and crises."
However, the topic broached by these economists is not only - and not
so much to do with - offering a moral view of the situation when such monetary
help is being rendered for purposes best known to the debtor. In this sense
the most important problem is changing the criteria; how is one finally
to assess a phenomenon known as "postsocialist transformation"? Depending
on what coordinates one chooses, watching the goings-on in Ukraine, we
see a variety of approaches as possible and expected. Some may assume that
the critical mass of such reforms has been achieved and that the Ukrainian
economy is capable of responding adequately to whatever instructions are
sent down from on high to carry out changes adhering to a certain "market
economy" standard. Others could view our realities as if from afar (e.g.,
using US expert opinions), in which case Ukraine is portrayed as a totally
different county.
According to Messrs. Gaddy and Ickes, a new economic pattern has evolved
over the six years of "reforms" in the post-Soviet countries, one with
its own very special rules of the game, including those explaining what
is to be considered a success or failure. "We call this system a virtual
reality economy, because it is based on either illusion or pretension in
terms of all practically most important economic parameters: costs, sales,
wages, taxes, and budget," they say, adding that it relies on the ultimate
illusion about this economy being larger than it really is.
What is actually happening in Ukrainian production is reflected by capital
investment statistics, Compared to 1990, investment figures have dropped
by 90% in a number of sectors and this alarming situation does not seem
to bother many. Bankruptcy is still rare. Moreover, such enterprises, despite
their obvious unprofitability, are not reduced or quietly phased out; they
are often expanded. Take Ukraine's steel industry ("metallurgy" is the
word used in all the official reports). Being in the red was no problem;
it survived and showed a record export increment in 1997. Now, moving toward
the end of 1998, a number of enterprises take the lead there, without ever
getting any foreign exchange returns from abroad.
US experts are no longer amazed by these paradoxes. Usually they attribute
nonpayments and defaults to the fact that Ukrainian enterprises do not
pay their contractors and that the latter do not pay their workers, and
that all of them do not pay taxes. Much has been said about tax arrears
and the predominance of barter deals in Ukraine, but very little if at
all about why all this benefits the state and all those enterprises. These
experts believe that the main reason is that "companies are allowed to
operate without footing their bills (which makes no sense in the West)
is because these values are reallocated to them from other sectors of the
economy. It is further allowed not to pay taxes which, in reality, is a
continuation of budget subsidies, although in a different form. However,
the most important thing is the reallocation of values from the sectors
producing them (primarily the raw material ones) to those consuming them.
Western experts remind us that certain economic vehicles activated under
socialism were also based on the de facto financing of industries using
understated raw material costs. At the time the "national economy" also
seemed to possess a large industrial sector producing values (although
in reality it destroyed them). In short, the stated authors infer that
the "virtual reality economy" is solid and perfect, in its own way, the
more so that it enjoys "popular support" which is precisely why those in
power do not want genuine market reforms.
The reader may ask why this author quotes so extensively from "theories"
which have no practical use. The answer is: Precisely because this author
wants the reader to understand what all those decisions made by the President,
Cabinet, or Parliament on an almost daily basis are all about. By concentrating
on up-to-the-minute - or transitional - problems and discrepancies we are
not only informed about all nuances of the ongoing economic ado, but also
taught not to see the actual, not illusory aspects of what is happening
before our very eyes.
Here is a simple example. Verkhovna Rada deliberated the national debt
last week. The Finance Ministry's version was that Ukraine's foreign debt
is substantial but not disastrous. The parliamentary Counting House said
the debt is hair-raising, greater than Finance Ministry figures by several
orders. Which bureaucrats are right? What about the donors' comptrollers?
The overall impression is that, by using the domestic "appraisal system"
(which, remarkably, is also used by IMF) we can neither make effective
decisions, nor have real prospects. Why? Because our official institutions
do not look for and thus cannot find the actual reasons for the debt problem.
Also, because each of those empowered to make crucial decisions is, in
his own way, not interested in taking such effective steps (let alone the
parliamentary resolution about the Cabinet performance and instructions
to the Prosecutor General to investigate the "debt-accumulating activities"
of top-level bureaucrats). Under the circumstances we all are best off
living at someone else's expense. Take the national needs in budget subsidies.
Theoretically, a normal polity can spend on its economy precisely as much
as it gets by way of budget returns plus whatever it can borrow outside.
However, the Ukrainian state seems inherently oriented not toward common
sense but the "needs of the masses" as yet another socialist holdover.
Yuliya Tymoshenko, head of the Budget Committee, says: "The actual shadow
deficit of the 1999 budget will be Hr 180 billion, considering the arrears
on social payments." The Finance Ministry claims it will be Hr 600 million.
Naturally, both allegations cannot be reconciled without revolutionizing
changes in our legislation. Once again some "virtual reality guidelines"
will be adopted, simply because it is very hard to phase out illusions.
Getting back to the principal issue of whether or not the Ukrainian
economy should be rescued, on the one hand, the logical answer is in the
negative; who needs such "economy" in the first place? On the other hand,
rescue operations are necessary, even if only to save people, who have
got used to the notion of being saved.






