LONG-SUFFERING DEREGULATION: FINALLY HERE, BUT DAYS OF FINANCIAL STABILITY ARE NUMBERED

However, the ministries' and agencies' red tape keeping the edict unpublished was not the best of the dirty tricks of which the bureaucracy has plenty. Even making the edict public provides no guarantees that it will actually be implemented. The document embraces a broad range of government regulation, reducing the number of businesses subject to licensing, simplifying customs procedures, lowering expenses incurred by the implementation of normative acts, restricting inspections and monitoring of business entities, etc. Under the circumstances, one can bet this document will be sabotaged at the regional bureaucratic level. Come to think of it, their resistance is understandable. The edict not only denies the local bureaucrat a nice under-the-counter income, but also attempts to change norms already firmly established by other laws, which means that this bureaucrat will not consider such changes binding. In all probability the State Committee on Business Development, vested with special powers in terms of the control and coordination of deregulation, will be unable to act as a businessman's legal counsel. At the same time, the Committee's right to veto normative acts issued by central authorities and heads of state administrations, if these acts contradict the newly signed edict, will be a thorn in the side of local bureaucrats who will vent their frustration on local businesses. Otherwise everything will remain the same.

As for businessmen, their attitude shows that they have largely missed the document. Apart from clashing interdepartmental interests (which means that some unpleasant changes could be made in their balance sheets, upsetting the business climate), the edict does not solve, and nor does it even try to solve, the basic problems holding back business progress. For example, there is no mention of the staggering taxes, making entrepreneurs set up one-day firms and then running away. Reading about the "simplified procedures" of forming and liquidating enterprises, a down-to-earth businessman or tax inspection official will only smile; there is nothing new in it for the former or the latter.

Another category of businessmen, referred to in the edict as "natural persons engaged in business without the legal entity status," had a lucky break last week. On February 5, Verkhovna Rada passed a law envisaging fixed taxation benefiting "shuttle" vendors and marketplace sellers. Obviously, fly-weight business now has a real chance to partake of deregulation. The new law provides for accounting exemptions and an opportunity to leave revenues out of the annual aggregate taxable income report, since payments made under fixed tax returns are final and disregarded when recalculating tax liabilities. In addition, such businessmen no longer have to buy commercial licenses, and the fixed taxes range from Hr 20 to Hr 100, not much, all things considered.

The man in the street (that is, one not included in the "objects of deregulation") may consider last week no different from any of previous ones. In reality, the first week of February saw a number of important developments that more often than not pass unnoticed by people remote from the financial domain, but which have a direct bearing on these people's wallets. Last Wednesday, Finance Minister Ihor Mityukov said in an interview that the Cabinet's major task in February 1998 is to secure 100% financing of current wages, pensions, stipends, and possibly redeem such arrears to the tune of at least Hr 70 million. The reader should be reminded that redemption of budget liabilities has for the past three years remained a top priority with the Cabinet, but previously reducing arrears was made directly dependent on tax return increments imposed on enterprises just dragging themselves out of the crisis. The result, as of the end of the second decade in January, was Hr 781 million worth of back wages (compared to Hr 771 million at the beginning of 1998), and Hr 1,113 million worth of Pension Fund liabilities (Hr 1,280 million at the start of January 1998).

Having lost all hope for economic growth, the government is prepared to change the guidelines. Mr. Mityukov has started the required brainwashing. "One shouldn't fear excessive borrowings or emission before the elections which would cause a rise in inflation," he says, referring to considerable redemption payments to be made in the first quarter of 1998. And promises that "after March we will activate the second financial resource, spending reductions." Apparently, the Cabinet knows no better than try the good old tricks, if even for one last time.

Presidential Adviser Anatoliy Halchynsky must have had precisely this in mind when commenting on the January inflation rate. In his words, one should not "overestimate" the 1.3% rise, because there is a "very high inflation potential of the economy." The National Bank in its turn made perfectly clear how much the situation was being overestimated (maybe underestimated is the right word to use?). On February 6, the NBU Board raised the discount rate to 44% annually, with 13% annual inflation rate (remarkably, six months earlier inflation and discount rates almost tallied).

The Day polled bank managers and almost all the respondents proved unanimous in their views. The time of financial stability is up. What happens next will be hryvnia devaluation, capital outflow, and mounting costs to the government expenses in servicing and redeeming its bonds. In other words, the money-printing machines will be put back to work, but their printed matter will never reach the pockets of those for whose sake all this was supposedly began.

Incidentally, none of the banks has increased deposit interest rates, while there is every indication that loan rates for enterprises will grow.