ECONOMY FOR THE WEEK

Alex Sundakov, former IMF representative to Ukraine, commenting on the country's economy in an interview with Zerkalo nedeli, admitted that, given the ongoing budget chaos, even the slight rise of certain individual indicators cannot halt the general decay. Small wonder, he concluded, because the only thing that has changed in the corridors of power since Soviet times is things over which bureaucratic horse-trading takes place. Previously, professional lobbyists (tolkachi in the language of those days, which translates loosely as "fixers") specialized in getting materials, cadre allocations, and funds. Now they concentrate on institutional-financial instruments in terms of budget subsidies, credits, guarantees, licenses, quotas, customs and tax concessions, settlement of arrears between enterprises, government programs and Cabinet resolutions, and presidential edicts. In other words, the large-scale redistribution of economic resources by the state, being a major characteristic of socialist economic policy, is still preserved.

In fact, Mr. Sundakov seems to have overlooked another "fixer" regularly found in these corridors of power: the International Monetary Fund under whose attentive, albeit often unseen, eye a host of decisions, good and otherwise, are made.

Early last week IMF's senior permanent representative to Ukraine Henri Gesquer declared that Ukraine will receive additional loan installments "only if the government adopts a number of measures within the next ten days to improve the situation in the budget, energy, and banking sectors." In a word, the reader may himself experiment with identifying the lobbyist during the next two weeks. We are convinced, however, that during this time the government will do but take measures relating to the three key sectors: budget, energy, and banking.

On May 8 the IMF mission completed its work in Kyiv, failing to recommend that the fund provide further EFF installments. Mr. Gesquer said the mission gives high marks to the National Bank's efforts to liberalize the exchange market and increasing budget revenues, compared to 1998, noting, however, that revenues remain below the EFF program indices, whereas budget expenditures surpass them. The Cabinet has thus violated the wage and pension arrears redemption schedule agreed upon with the IMF. In the first quarter the budget return shortage rose by UAH 4 billion (40%), amounting to UAH 13.9 billion as of April 1. Remarkably, experts associate this shortage increase not with "inveterate" tax evaders, but with unreasonable (in terms of macroeconomic estimates) government fiscal expectations. In any case, realizing that the required amount of taxes cannot be collected does not make the situation any easier for anyone concerned, although for some it will make it even harder, primarily those who are not in the habit of experiencing inconveniences.

Under Cabinet Resolution No. 764 of May 5, 1999, all checking accounts containing off-budget funds of the State Tax Administration must be transferred from commercial banks to the State Treasury. As usual, the new enactment offers not only a stick but also a carrot: managing these off-budget funds will be the State Tax Administration's sole prerogative. Moreover, the tax men are asked not to worry about any unauthorized withdrawal of such funds at any trying periods for the budget. "Funds transferred to special STA registration accounts," reads the resolution, "shall not be used for the redemption of arrears on social payments or for other purposes restricting STA usage thereof."

A presidential edict signed on May 11 offers a rather original way to comply with another IMF requirement - reduction of the arrears on wages and pensions: arrears on housing and municipal payments, gas and electricity, accumulated by workers of budget-sustained organizations, those of the Interior Ministry, servicemen, pensioners, and recipients of welfare, as of April 1 of this year, are to be redeemed by offsetting arrears on wages, pensions, and social payments, reads the edict. The Cabinet is to adopt the offsetting procedures within two weeks and the local authorities must carry them out within two months. As of April 1, back wages at budget-sustained organizations totaled UAH 967 million plus 2.21 million worth of arrears on pensions due from the Pension Fund.

Prior to the IMF mission's arrival, the NBU leadership was convinced that, unlike all the other concerned parties, it would have no problems reporting on the performance of the IMF memorandum. A week previously, Viktor Yushchenko stated that "IMF has nothing to blame NBU for." But then the mission came and corrected that statement. Once the mission was through with its work NBU "forgot" about its May 1 surprise for all those digging up incriminating evidence, namely its promise to lower the interest rate. At present, the per annum refinancing rate is 50%, although getting a loan from the NBU at this rate is practically impossible, for all credit emission is used either to buy dollars (an annual average of some UAH 200 million) or Finance Ministry bonds that no one except NBU needs. The second correction affects the interests of commercial banks. On March 30, the NBU refused to comply with a Parliament resolution demanding that every bank's authorized stock be not less than UAH 4.2 million. In other words, at the time the National Bank was against the liquidation of 24 banks just because their statutory funds did not measure up. Yet a month later NBU department director Viktor Zinchenko promised that the NBU would by May 20 develop an action plan to enhance capital sufficiency requirements to the banks, as recommended by the IMF and World Bank, and that NBU considered the UAH 5 million minimum acceptable. "Today it makes little sense for a bank with less than this amount to operate," declared Mr. Zinchenko.

Hence, if the Cabinet guidelines are to be implemented within ten days in the form of certain documents (and it will be quite some time before one can pass judgment on their effectiveness), and if these documents impress the IMF, then its mission "will try to do its best to convince its Board for Directors to consider the Ukrainian issue in late May." And if the board agrees, Ukraine will be able to receive the April and May tranches worth some $130 million plus $300 million to cover export losses.

Getting back to Alex Sundakov's comment, one has to admit that he is right about one major point. The IMF "fixers" will, of course, never call the tune in the Ukrainian corridors of power. Among other things because they are making a strategic mistake in telling the government what to do. Because this government, inspired by this list of "do"s without any of "don'ts", will end up fully controlled by our homegrown lobbyists.
 

By Iryna KLYMENKO, The Day