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Viktor Yushchenko flew to the United States on January 31, later joined by Premier Valery Pustovoitenko, Finance Minister Ihor Mytiukov, and Economy Minister Vasyl Rohovy. The Premier returned after a two-day visit, bringing what was described as firm confidence that the EFF cooperation will continue. True, to have this confidence he had to resolve "problem questions" on the spot, meaning problems with three US companies doing business in Ukraine. As for EFF prospects, this question will be answered a bit later, probably after testing the liberalization of the foreign exchange market. Fair enough, because IMF mission members will learn more from people's reaction than from any official reports.

But let us get back to the key factor which sent the Ukrainian delegation overseas to once again try to explain, apologize, and make new promises just to return and start going back on their word one more time. Why don't they just toss away all those foreign recipes the way they did two years ago? Apart from the hard cash presented on a silver platter, their recommendations have been of no use whatever to this government or President.

Apparently they can't, all things considered. And not because of reform which, in the Premier's own words, is really necessary in Ukraine. What makes our top bureaucrats fly to America is precisely their inability to cope with reform and a desire to somehow survive until better times. And of course, Ukraine's debts which they will never repay given today's political situation.

The heaviest arrears are on IMF and World Bank loans, even though given at the lowest interest rates but which, in keeping with world practice, cannot remain unpaid; only several hopelessly backward African states are in default with the IMF. These debts are followed by European loans, and eurobonds, which are not defaulted or written off on the world market. Their turnover terms stipulate immediate maturation and impounding of any public property in case of delay in current payments. Thus, writing them off is out of the question and Ukraine is so far not even considering doing so, guaranteeing strict observance of all debt commitments regardless of the domestic situation and arrangements with the IMF.

Actually, this financial punctiliousness of the Ukrainian leadership is quite superficial so far. Last week the Cabinet decided on unconditional restructuring of payments on the domestic government bonds owned by Ukrainian banks and maturing February 2-28 (in other words, the government admitted to a technical default). The National Bank was instructed to carry out the exchange. It may really happen due to Viktor Yushchenko's absence. The reader should be reminded that the previous semblance of voluntarism characterizing the previous exchange was maintained solely due to the NBU's insistence when the Finance Ministry was talked into settling the matter with the bankers amicably. In any case, if exchange is written on the wall at the NBU, it will come to pass. In a word, the government purse is empty and the coal miners have to be bought off every month.

Naturally, this unconditional approach will have most unpleasant consequences for the central authorities. Even now bankers say that this Cabinet decision will cause the banks to lose all confidence in domestic government bonds, a confidence already visibly dampened by last year's restructuring. Foreign experience indicates the same thing.

In particular, the Latin American experience during the crisis at the turn of the 1990s convincingly shows that such a tactic practically reduces to zero a country's ability to borrow on international financial markets and has a most negative effect on its prospects. In addition, a more flexible strategy may bring greater success in medium- and long-term perspective. These inferences were obtained by way of assessing the interrelationships between the type of strategy chosen - confrontation or cooperation - and its economic effects in Latin American countries. Mr. Klein, a noted international economist, carried out a most systematized analysis in 1994, studying the dependence of a country's economic development index on its debt payment strategy. His ratings reflect variables (e.g., inflation rate, per capita income increment) and debt strategy parameters in the seven largest Latin American states.

In his ratings Mr. Klein distinguishes between states in accordance with the degree of "cooperation" in terms of debt payments - i.e., debt strategy ratings. Colombia, rated the highest, adhered to the least possible confrontation with investors, showing the greatest flexibility in negotiating with creditors, eventually discarding foreign debt deferment. In contrast, Peru, rated the lowest, took an irreconcilable foreign debt stand. Chile is placed second, having adopted a mutually acceptable conversion program. Mexico, placed third, froze no debts or interest, whereas Venezuela, placed fourth, resorted to such measures but only briefly. The next two countries, Argentina and Brazil, went through a long term freeze on debt payments.

There is a direct connection between the economic growth rate and debt payment strategy (confrontation or cooperation). Endless talk and refusing political concessions to creditors (while declaring "continued cooperation") seems the most advantageous policy for Ukraine and its upper bureaucratic echelons must be well aware of it.

Until recently money was borrowed without giving much thought to how it will be repaid. Now everyone tells the government that it is time to think about paying it back and try to solve the problem jointly with creditors, because this solution will determine the country's destiny for decades to come. As for the creditors, they are prepared to agree that their money can be returned only by a country put back on its feet, with a strong economy, where no 1989 Romanian or 1933 German scenario could be played out. And that to revive and further develop this economy new heavy loans and investment will be in order. Thus, restructuring needs to be negotiated on a solid contractual foundation. This, in turn, calls for a program sufficiently convincing to creditors, secured by all branches of state power. Is such a thing possible in Ukraine?

Most points of such an "ambitious" program were included in that adopted by the Cabinet, but seemingly only due to pressure from IMF. However, this does not mean that the program will be carried out. Most likely, something altogether different will be done. There is no denying the fact that the Cabinet is as susceptible to lobbying as Parliament. Judge for yourself: on February 2 the Cabinet adopted a draft Program of Economic Restructuring in Ukraine for the Medium Term Period of 1999-2003. This is supposed to be the first real stage in implementing the Ukraine 2010 Program, Deputy Economy Minister Anatoly Vrublevsky declared, presenting the document at a Cabinet session. But then everything went like in the good old days: industry's share in the gross added value is to increase from 33.5% in 1997 to 33.9% in 2003; that of the agrarian sector is register 12.2% in 2003; machine-building and metalworking are to be regarded as priority industries (annual average gross output increment to reach 5.3%; that of construction materials, 4.2%, with 3.4% average industrial output increment), and so on and so forth.

Can this retread program be used to earn money for the state or its creditors? Obviously not for the state, because it would take an altogether different program. Can this program be used to pose as a decent negotiation position? Of course it can. And this is precisely what they are doing.

By Iryna KLYMENKO, The Day