The government may collapse after the hryvnia
Those not familiar with the “code of conduct” for government officials during the visits to Kyiv of International Monetary Fund (IMF) auditors were, to say the least, bewildered to hear Vice-Premier Volodymyr Kuratchenko's emotional outburst at the Cabinet of Ministers session last Wednesday.
In reality, the vice-premier, speaking about the necessity “to revise the government's Memorandum and the National Bank's monetary policy by resorting to the emission of money to finance investment projects in top-priority sectors,” not only shocked his colleagues but also did a big favor to their political opponents.
Usually, a visit by IMF missionaries to Ukraine makes the Cabinet and the Presidential Administration a closely-knit team of like-minded people, at least for a week, who tirelessly worry about the destiny of market reforms in this country. In this time, all public comments by officials are subjected to severe control, and all newspaper and TV information is closely monitored, with the sole purpose that the missionaries do not see through, even for a second, the true intentions of the authorities and do not refuse to credit their far-from-market reforms.
In general, it is easy to understand and explain Vice-Premier Kuratchenko's childishly ingenuous reaction if one recalls a two-week-old story, when another vice-premier Serhiy Tyhypko reported, at a similar session of the government, that “the state is balancing on the brink of collapse.” At that time nobody emphasized, for some reason, the fact that the assessments by Mr. Tyhypko and his boss Mr. Pustovoitenko did not coincide. In other words, the “right-wing” criticism of the Cabinet performance was simply “slurred over,” as were the measures it proposed to liberalize the economy. The question is why Mr. Kuratchenko should not have interpreted the differences between the vision of the situation by the premier and the vice-premier as a signal for “left-wing” criticism. It might as well seem to him that the premier needs such support as never before.
However, Mr. Kuratchenko was a bit mistaken. But not in that the premier does not need “left-wing” support (for he can accept adequately only this kind of support), but in that the support was offered in the wrong place and wrong time. This can, therefore, essentially complicate the life of first the government, then the electorate, and then the President: frankly speaking, now is not the best time for the President to proclaim the “correction of reforms” (which means, translated from bureaucratic jargon, a tilt toward enhanced administrative control over the economy, the freezing of relations with financial donors, and destabilization of the financial market...). But one thing at a time.
It is no secret that nobody even thought of rejecting the “administrative tilt:” the vice-premier's advice was not needed here. The point is in whose interests the tilt is being carried out. Since the beginning of the year, the President's entourage, by the hands of the Cabinet, has been actively redistributing fuel and power resources in favor of a limited number of enterprises and firms. As is known, this strategy, unexpectedly reinforced by a poor oil market situation, led to rather deplorable results. Things have gone so far that only two ways out of this blind alley are discernible. One is, as satirist Zhvanetsky said, “to keep moving,” the other presupposes a concession... to the “aliens.” Mr. Kuratchenko's stand in general does not differ from that of the premier, but, in particular, there are lots of differences. Figuratively speaking, the premier wants to see socialism only preserved for those who make part of his and the President's pressure group. Mr. Kuratchenko, conversely, demands socialism for all, justly being puzzled about how they will manage to achieve this.
It should be noted the first vice-premier is absolutely right, for piecemeal socialism is only possible at a short stretch of time. By the way, we could observe this in the past 3-4 months. And now one must again make a choice: where to go and who to follow.
Experts of the German economic consultative group attached to the government strongly recommend renouncing state regulation, pointing out that it in fact has caused the fuel crisis of today and may cause a financial crisis tomorrow. “The current restrictive import pattern cannot be maintained even in the short term. The preservation of current gasoline prices for several weeks not only threatens to destabilize money but will also become a destructive force for economic processes as a whole,” says their latest memorandum to the government.
This means not only the adherent of a planned economy Mr. Kuratchenko was right. Also right was Mr. Tyhypko, hinting to government officials that, without Western loans, they will have to look for a different job in any case. However, it is the insight of the former that now helps implement the forecasts of the latter.
Last week it became known, in the words of IMF European Department 2 Director John Audling-Smith, that the International Monetary Fund is satisfied with the macroeconomic stability in Ukraine but is disappointed with the slow progress of structural reforms. “We are disappointed that structural reforms were not very fast, and they must be speeded up in the nearest months and years. Reforms are indispensable in a whole range of sectors - in agriculture, power engineering, and public administration,” he said.
It will be recalled that Mr. Kuratchenko is in charge of the fuel-and-energy complex and the industry in the Cabinet. This means he in fact must, but does not want to, solve all those problems which cause the donors' representative to be dissatisfied. So everything is clear. But it will hardly be clear further on. The unwritten moral code of a government official proclaims: you should not take too close to heart any state-imposed tasks, or else resignation (or a psychic breakdown) is inevitable. Cabinet long-livers know that only what is 2-3 weeks away can be fulfilled. Therefore, to keep things going, one must negotiate with the IMF in good faith, namely, to promise to finish the unfinished and sign various resolutions and instructions, for example, about the cost of Kyiv city public utilities, raising the quantities of gas sold for cash, or privatization and even bankruptcy of something. And to promise to do after the “tranche” what is so far impossible to do (in 2-3 weeks), for instance, to impose increased excise duties on gasoline, alcohol and cigarettes, or pay wage and pension arrears. What is more, it does not matter whether or not this will be done. For the last promises will be “re-promised” for a third time in a row.
The IMF representative refused to assess the possibility of Ukraine receiving the next EFF installment or name a probable date when this matter will be discussed by the IMF Board of Governors. NBU head Viktor Yushchenko also found it difficult to forecast the outcome of negotiations with the IMF, saying only that “the situation is desperate.” Obviously, the revelations of Mr. Kuratchenko, timed to the reported “opinion” of the IMF and NBU, did not clear up the point. Rather to the contrary.
Naturally, the first vice-premier's lack of self-control is an unpleasant, but not fatal, thing. Far more dangerous at this hour, decisive for the President, is the situation on the hard-currency market. By a strange coincidence, the IMF mission is visiting Kyiv for the second time in the heat of a currency crisis. During the previous visits, the missionaries almost did not intervene in the working out of measures to “pacify” the market, allowing Mr. Yushchenko to act at his discretion. It will probably be the same this time, the only difference being the National Bank has now still less space for maneuvering. This is the kind of conclusion we are inclined to make, with due account of our officials' actions and the appraisals of German experts who, incidentally, warned the Cabinet in good time about all the previous crises. Now again they are warning that “the extent of trust to the exchange rate mechanism will depend on the implementation of the critical mass of structural reforms together with the pursuit of a consistent overall policy of reforms (although this is hardly possible in the run-up to elections). In case no restructuring measures are taken at the enterprise level, namely, application of the bankruptcy procedure, deregulation of power engineering and agriculture, removing disproportion caused by administrative regulation of prices, reducing subsidies, and improving the investment climate, any exchange rate mechanism will be doomed to failure.”
Those not familiar with the “code of conduct” for government officials during the visits to Kyiv of International Monetary Fund (IMF) auditors were, to say the least, bewildered to hear Vice-Premier Volodymyr Kuratchenko's emotional outburst at the Cabinet of Ministers session last Wednesday.
In reality, the vice-premier, speaking about the necessity “to revise the government's Memorandum and the National Bank's monetary policy by resorting to the emission of money to finance investment projects in top-priority sectors,” not only shocked his colleagues but also did a big favor to their political opponents.
Usually, a visit by IMF missionaries to Ukraine makes the Cabinet and the Presidential Administration a closely-knit team of like-minded people, at least for a week, who tirelessly worry about the destiny of market reforms in this country. In this time, all public comments by officials are subjected to severe control, and all newspaper and TV information is closely monitored, with the sole purpose that the missionaries do not see through, even for a second, the true intentions of the authorities and do not refuse to credit their far-from-market reforms.
In general, it is easy to understand and explain Vice-Premier Kuratchenko's childishly ingenuous reaction if one recalls a two-week-old story, when another vice-premier Serhiy Tyhypko reported, at a similar session of the government, that “the state is balancing on the brink of collapse.” At that time nobody emphasized, for some reason, the fact that the assessments by Mr. Tyhypko and his boss Mr. Pustovoitenko did not coincide. In other words, the “right-wing” criticism of the Cabinet performance was simply “slurred over,” as were the measures it proposed to liberalize the economy. The question is why Mr. Kuratchenko should not have interpreted the differences between the vision of the situation by the premier and the vice-premier as a signal for “left-wing” criticism. It might as well seem to him that the premier needs such support as never before.
However, Mr. Kuratchenko was a bit mistaken. But not in that the premier does not need “left-wing” support (for he can accept adequately only this kind of support), but in that the support was offered in the wrong place and wrong time. This can, therefore, essentially complicate the life of first the government, then the electorate, and then the President: frankly speaking, now is not the best time for the President to proclaim the “correction of reforms” (which means, translated from bureaucratic jargon, a tilt toward enhanced administrative control over the economy, the freezing of relations with financial donors, and destabilization of the financial market...). But one thing at a time.
It is no secret that nobody even thought of rejecting the “administrative tilt:” the vice-premier's advice was not needed here. The point is in whose interests the tilt is being carried out. Since the beginning of the year, the President's entourage, by the hands of the Cabinet, has been actively redistributing fuel and power resources in favor of a limited number of enterprises and firms. As is known, this strategy, unexpectedly reinforced by a poor oil market situation, led to rather deplorable results. Things have gone so far that only two ways out of this blind alley are discernible. One is, as satirist Zhvanetsky said, “to keep moving,” the other presupposes a concession... to the “aliens.” Mr. Kuratchenko's stand in general does not differ from that of the premier, but, in particular, there are lots of differences. Figuratively speaking, the premier wants to see socialism only preserved for those who make part of his and the President's pressure group. Mr. Kuratchenko, conversely, demands socialism for all, justly being puzzled about how they will manage to achieve this.
It should be noted the first vice-premier is absolutely right, for piecemeal socialism is only possible at a short stretch of time. By the way, we could observe this in the past 3-4 months. And now one must again make a choice: where to go and who to follow.
Experts of the German economic consultative group attached to the government strongly recommend renouncing state regulation, pointing out that it in fact has caused the fuel crisis of today and may cause a financial crisis tomorrow. “The current restrictive import pattern cannot be maintained even in the short term. The preservation of current gasoline prices for several weeks not only threatens to destabilize money but will also become a destructive force for economic processes as a whole,” says their latest memorandum to the government.
This means not only the adherent of a planned economy Mr. Kuratchenko was right. Also right was Mr. Tyhypko, hinting to government officials that, without Western loans, they will have to look for a different job in any case. However, it is the insight of the former that now helps implement the forecasts of the latter.
Last week it became known, in the words of IMF European Department 2 Director John Audling-Smith, that the International Monetary Fund is satisfied with the macroeconomic stability in Ukraine but is disappointed with the slow progress of structural reforms. “We are disappointed that structural reforms were not very fast, and they must be speeded up in the nearest months and years. Reforms are indispensable in a whole range of sectors - in agriculture, power engineering, and public administration,” he said.
It will be recalled that Mr. Kuratchenko is in charge of the fuel-and-energy complex and the industry in the Cabinet. This means he in fact must, but does not want to, solve all those problems which cause the donors' representative to be dissatisfied. So everything is clear. But it will hardly be clear further on. The unwritten moral code of a government official proclaims: you should not take too close to heart any state-imposed tasks, or else resignation (or a psychic breakdown) is inevitable. Cabinet long-livers know that only what is 2-3 weeks away can be fulfilled. Therefore, to keep things going, one must negotiate with the IMF in good faith, namely, to promise to finish the unfinished and sign various resolutions and instructions, for example, about the cost of Kyiv city public utilities, raising the quantities of gas sold for cash, or privatization and even bankruptcy of something. And to promise to do after the “tranche” what is so far impossible to do (in 2-3 weeks), for instance, to impose increased excise duties on gasoline, alcohol and cigarettes, or pay wage and pension arrears. What is more, it does not matter whether or not this will be done. For the last promises will be “re-promised” for a third time in a row.
The IMF representative refused to assess the possibility of Ukraine receiving the next EFF installment or name a probable date when this matter will be discussed by the IMF Board of Governors. NBU head Viktor Yushchenko also found it difficult to forecast the outcome of negotiations with the IMF, saying only that “the situation is desperate.” Obviously, the revelations of Mr. Kuratchenko, timed to the reported “opinion” of the IMF and NBU, did not clear up the point. Rather to the contrary.
Naturally, the first vice-premier's lack of self-control is an unpleasant, but not fatal, thing. Far more dangerous at this hour, decisive for the President, is the situation on the hard-currency market. By a strange coincidence, the IMF mission is visiting Kyiv for the second time in the heat of a currency crisis. During the previous visits, the missionaries almost did not intervene in the working out of measures to “pacify” the market, allowing Mr. Yushchenko to act at his discretion. It will probably be the same this time, the only difference being the National Bank has now still less space for maneuvering. This is the kind of conclusion we are inclined to make, with due account of our officials' actions and the appraisals of German experts who, incidentally, warned the Cabinet in good time about all the previous crises. Now again they are warning that “the extent of trust to the exchange rate mechanism will depend on the implementation of the critical mass of structural reforms together with the pursuit of a consistent overall policy of reforms (although this is hardly possible in the run-up to elections). In case no restructuring measures are taken at the enterprise level, namely, application of the bankruptcy procedure, deregulation of power engineering and agriculture, removing disproportion caused by administrative regulation of prices, reducing subsidies, and improving the investment climate, any exchange rate mechanism will be doomed to failure.”
Newspaper output №:
№29, (1999)Section
Economy
