Few will deny in Ukraine that, with the parliamentary and presidential campaign getting closer, the rival groups increasingly often name among their priorities the formation of financial-industrial alliances capable of not only winning and holding power, but also laying the corporate foundations of the future economy. The All-Ukrainian Business Conference and a convention of the Ukrainian Banks Association last week were graphic examples.
True, neither has contributed anything essentially new to executive strategy. Last week, the Cabinet, for the umpteenth time, declared its being prepared to conduct a mutually beneficial dialogue with Ukrainian big business. As was to be expected, however, the current situation will almost certainly make corrections in this dialogue - mainly in terms of government membership.
A closer look at the Cabinet's fiscal policy makes it clear that the interests of power are gradually being shifted toward denationalizing a large portion of public property, getting it out from under direct government control. At the same time, the Cabinet is loath to change its over-regulated status, which considerably narrows the choice of tools of economic reform. In Ukraine, the government inherently assumes a key role in forming what is supposed to be a promising economic structure, imposing on all the others its vision of this country's place in the international division of labor. The Cabinet's active guiding role implies that the government still intends to provide political backing for its chosen industrial adjustment schemes. Accordingly, whoever dissents from this official view will be publicly denounced.
Ukraine already has large financial-industrial groups uniting banks, industrial enterprises in various sectors, insurance and shipping companies that are actively supported by the state. And in every case the state reserves the right to interfere in their daily management (by holding a controlling interest in enterprises included in these business structures) and to determine a number of vital operating parameters, that is, regulating the costs of products made by natural monopolists (as was the case with the institution of cash settlement standards in energy supplies or the administrative imposition of electricity costs). But this is not the main point.
By using economic and administrative levers in allocating national incomes, the government provides practically unlimited investment opportunities for the financial industrial groups made with its participation, as was confirmed, even though not in so many words, by the Ministry of the Economy last Wednesday. According to First Deputy Minister of Economy Shevchuk, the Cabinet's draft resolution envisages the following priorities in the immediate future: (a) reinstatement of the government's role in supporting the investment process (using at least 3% of the budget revenues in 1999, apart from specially instituted off-budget sources, such as sectoral and general public funds); (b) simplified procedures for Ukrainian investors, and (c) government stimulation of direct foreign investments, so as to discard credits as soon as possible.
True, Cabinet people realize that the planned investment boom will never come to pass in Ukraine if the banks refuse to support the existing regime. And this may well be the case for the simple reason that these banks will not live to see the economic upsurge which is constantly promised and postponed. Despite their totally subordinate position in such financial-industrial groups, Ukrainian banks have played a principal role in economically reviving certain export-oriented industries, maintaining the national financial market balance, and in warding off bankruptcy at nonremunerative state-owned enterprises.
For years on end the government has kept stagnating enterprises alive using leading commercial banks to pump them with soft credits. Precisely these banks were the obedient buyers of the earliest (therefore the riskiest) government bonds. Banks actually remain the most loyal supporters of the executive due to their innate bent for political stability. Thus it was not surprising that Premier Pustovoitenko's statement about the worsening condition of Ukraine's leading banks - e.g., Prominvestbank, Ahroprombank, Ukrsotsbank, Ukreximbank, and Savings Banks - was met by the bankers as a "stab in the back."
Why the Cabinet resorted to such damaging tactic is anyone's guess. Especially considering that a group of special authorized banks (among them the ones mentioned) has been in the process of formation for the past several months. Perhaps it was the Premier's reaction to the UBA convention's agenda (among other things, the bankers were to consider measures to increase their influence on the political and economic situation in Ukraine). It is also possible that the Cabinet led the bankers to understand that they would remain subordinate, regardless of the convention's resolutions, as the ruling bureaucrats would still decide on who would receive Cabinet guarantees for long-term credits "in accordance with the priorities determined by the government" or participate in operations "on a special basis" with shares of public stock companies exempted from privatization.
As for last week's Cabinet resolution, On the Redemption of Debts to Commercial Banks of Ukraine under Credits Provided Against Guarantees of the Ministry of Finance and Ministry of Culture and the Arts, and Against State Treasury Bills, it is not likely to have any tangible effect on the financial standing of large banks. Because debts payable to the Ukrsotsbank, Ukraina Bank, Prominvestbank, Ukreximbank, and Savings Bank will be adjusted (by extending redemption terms for up to 5 years) and actual payments will begin only after adding an appropriate expense item to the State Budget - here, too, top-level bureaucrats will have the final say.
Thus last week's developments were yet another demonstration to the general public of the government's vision of Ukraine's economic prospects. Cabinet support of large industrial structures (not necessarily state-owned, with priority status or even loyal) was proclaimed a new "super-target" of the rich and famous. One is left to expect economic growth and try to forget that the world economic crisis was triggered off precisely by the over-regulation of business in Indonesia, Malaysia, and South Korea.






