Something nobody in Ukraine knows yet

On the eve of the IMF’s historical decision on Ukraine, Western experts increasingly often say something like “This country does not really know what it wants, so why does it need all that money?”

Ukrainian experts, in turn, are stunned by such questions. Indeed, starting in the first weeks of 1999, the entire bureaucratic machine was activated to promote the Ukraine in the Year 2001 official program which, God forbid, may be supplemented by yet another parliamentary program similar to the National Rebirth of Ukraine. Of course, all these programs are documentary symbols of the official concept of Ukraine’s bright future, while the ideological — some would even say mental — preferences of the ruling politicians is to have cadres read between the lines. Meanwhile, the ideals of which the top functionaries show imitations, attest to what they actually want in fact.

Western creditors, asking what we want exactly, perhaps subconsciously expect to hear that we want to be like them, that we want to join the European Union and NATO. Ukrainian officials spare little verbiage in assuring the West that Ukraine treasures its values. But what happens in reality? Behind closed doors and over drinks Ukrainian politicians dream of something altogether different, the Chinese way. China has everything every post-Soviet bureaucrat with a lasting socialist hangover can only dream of: omnipotence of the administrative machine, state regulation, nationwide support of the established regime, along with all those “zones” and “impetuous growth” to top it all off.

Last week Kyiv was visited by a representative delegation from the People’s Republic of China. During the talks President Kuchma and Deputy Chairman of the Chinese State Council Wu Yi discussed “certain aspects of bilateral political relationships and ways to expand trade and economic cooperation.” The President emphasized, in particular, that Ukraine and China have no conflicts to settle and have always supported each other. Journalists were told that both sides discussed bilateral economic cooperation, specifically the substantial decline in Ukrainian exports to China in 1998. Last year’s Ukrainian-Chinese trade turnover dropped by $400 million compared to 1997, totaling some $860 million (Ukrainian exports: $737.4 million). At the time the media reported that the decline was largely caused by production growth in China, particularly in the steel and mineral fertilizer industries. That no mention was made of other aspects of the Chinese dream was only natural: in many ways Chinese society remains closed to the outside world.

There are, however, increasing leaks through rigid Chinese censorship, testifying to massive clashes between urban and rural dwellers on the one hand and the Communist authorities on the other. A strictly confidential report prepared by Communist Party staff last year registers at least 9,000 “incidents” — i.e., acts of violence between the populace in rural and urban areas with law enforcement agencies. Apart from the glaring misery of the bulk of the peasantry and growing urbanization, the Chinese are increasingly irked by official Beijing propaganda. Despite the fact that Chinese society has long been divided into classes with all the attributes thereof, property and social differences, the government machine continues the myth about being a workers’ and peasants’ state.

The heavy financial crisis gripping Southeast Asia has also placed China on the critical list. At least 50% of 120,000 state enterprises are unprofitable. The overall damage being recompensed from the budget is estimated at $700 billion and keeps rising. The state enterprises can keep body and soul together only due to continuous kiting from state-run banks. These loans are actually totally unsecured except for the paper used by Beijing’s money-printing presses producing yuan “for domestic use only.” Not so long ago, the Chinese government refused to rescue one of its largest investment companies operating in the most developed province of Guangdong. This fact alone caused a panic on world stock markets. Foreign observers hurried to predict that the giant bubble of the Chinese economy would soon burst. Should this happen, at least 50 of the 100 million Chinese workers in state enterprises would lose their jobs.

Yes, Chinese GDP is growing fast, but this should not be overrated. The biggest problem facing the Chinese economy is staggering overproduction. Unsold inventories of goods are worth about $500 billion (55% of the GDP). To maintain a semblance of stability, China is doomed to stepping up output, but it is anyone’s guess how long its economy will endure all such gargantuan structural distortions.

If government schemes do not work, China will be in for a new ordeal: yuan devaluation. On the one hand, this would give Chinese goods easier access to the world market, but on the other it would trigger off another round of the Asian crisis, which would then ricochet and hit the Chinese people. Chinese authorities currently assure everybody that they will never resort to devaluation. Instead, the country will be offered a plan sharply reducing the state enterprises’ share and increasing the growth rate. Some experts tag this a new liberal Chinese revolution.

Getting back to Ukraine’s problem, the official Chinese program offers Ukraine all the “benefits” which Beijing will have to forfeit: soft credits for “structural reform leaders,” protectionism, and aid to unprofitable enterprises. True, there are substantial differences. The President thus expressed his feelings: “We say no to emission as a solution to the most acute problems accumulated in the economy.” Regrettably, he did not specify what money will be used from what sources to implement his structural transformations. In other words, there is still hope that the Ukrainian bureaucrats’ Chinese dream will not come true. But if the President’s no to emission is just another formal gesture addressed to the West, ten years will look short for Ukraine.

It seems that late last week Ukraine was visited by another specialist on the command economy, Belarusian President Aleksandr Lukashenka. Since his visit had a “purely economic character,” both Presidents must have had an opportunity to discuss the Chinese consequences of the economic concepts they share. That is, of course, if the Presidents deem to bother their heads about such little things.