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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

Renewed Hopes for Budget Cuts Spawn Draft Resolution

13 November, 2012 - 00:00

Presidential adviser Anatoly Halchynsky soothed us with hopes for an extended finance credit being given Ukraine by IMF.

Interfax-Ukraine says his hopes also stem from the fact that Deputy IMF Manager Stanley Fisher told Premier Pustovoitenko he was very impressed by Ukraine’s economic attainments since the last Standby Credit.

Is IMF that short-sighted? Hardly likely. Rather, the Fund must have felt satisfied by the government’s and President’s steps to sequester the budget, but these steps are still to be approved by Parliament. Under the circumstances the executive alternate between threatening to use a Presidential edict (Serhiy Tyhypko to Interfax-Ukraine) and ruling out the possibility altogether (Anatoly Halchynsky, ibid.). Anyway, the budget is very likely to be reduced. The Cabinet proposes Hr 1.6 and Hr 2.75 billion reductions for the income and expense items, respectively, thus lowering the deficit by a billion hryvnias and stopping at 2.3% of GDP.

Will this satisfy IMF? There are indications – e.g., the macroeconomic policy team from Harvard International Development Institute, led by Janusz Szirmer – that this will serve to harden the IMF’s stand, so its next demand could be an absolutely deficit-free budget. In other words, spending would have to be cut by another Hr 2.8 billion and revenue by Hr half a billion. Will the Cabinet play along, with a very economically emotional Parliament breathing down its neck?

Meanwhile the time has come for the 1999 budget resolution. Commenting on it, Vitaly Melnychuk, deputy head of the legislature’s Accounting Chamber, notes that the draft is prepared in the “best” Cabinet traditions: the watchword is balanced and realistic indices, all of them! And the key idea is financing the deficit using international aid and borrowings. At the same time, this draft resolution is a true child of the budget which is being sequestered, plus the IMF loan still to be received. The document does not envisage any increment in revenues, while all the expenses are given in every detail. In other words, continues Mr. Melnychuk, the Cabinet has learned no lessons. The only thing it is good at is spending with not a word about how to raise budget revenue except by foreign loans.

Will Parliament – and then IMF – accept this premature baby?

 

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