What is the President Not Saying?

MACROECONOMIC SITUATION IN THIS COUNTRY

Contrary to all forecasts, Ukraine continues to decline. The status of a state falling to infinity is likely to remain the symbol of the current President's economic policy. GDP dropped by 4.2% in the first quarter of 1999. And according to April forecasts by the Austrian Erste Bank Research, the overall decline by the end of the year should also reach 4.0%. In addition, real GDP in 1998 was only 30.2% of the 1990 level. With due account of the national specifics of GDP variability in Ukraine, the predicted growth of this indicator laid down in the Ukraine-2010 Program looks strange, to say the least. The 7-8% growth envisioned by the program cannot be logically explained, taking into consideration the experience of Central and East European countries. Even Poland, for all its basic successes in market transformation, expects +3.5% growth for 1999, although it had +4.8% in 1998. A no less successful Czech Republic even experienced a -2.5% drop in 1998, and also expects a -1.0% drop for 1999. Is it worth repeating that Ukraine never laid any groundwork for economic growth, except saying that the fall must stop sometime?

As to inflation, unfortunately, the closer we approach the presidential elections, the more chance we have to see rampant inflation. While in the first quarter of this year the inflation rate was 3.5%, the prospects of repaying social arrears by switching on the money-printing presses make the situation even more depressing. According to the forecasts cited above of the Austrian Erste Bank Research, this year Ukraine will face 55.0% inflation, according to the most optimistic calculations.

The permanent lack in the President's economic entourage of either any clear understanding of macroeconomic processes or of possible steps to normalize the situation, has become an unshakable tradition. An oath that the notorious "course of reforms" will not be changed, contradictory statements, and a barely hidden hope of staying in office for another term, are the subjective factors that in fact promote the state's degradation.

The objective factors can include, inter alia, an ominous foreign debt, feeble budget revenues, and non-receipt of the funds promised by international lending organizations. All these and a series of other factors will not improve the macroeconomic situation.

SPHERES OF THE NATION'S ECONOMY

The industry continues to run a fever. In 1998, industrial output dropped by 1.5% (although Western experts disagree with the methods used by the Ukrainian State Statistics Committee and insist that the fall was deeper). The 1999 decline rates of 0.4% in January and 2.1% in February testify to a pronounced tendency, not some happenstance event. It is already a great achievement that industry reacts so weakly to the worsening economic situation in the country. The index of industrial output, assessed in world prices, is steadily diminishing. While in 1994 it was 39.2% of the 1990 level, it constituted 26.4% in 1998. Instead of helping national enterprises to adjust to market conditions, the state has unleashed a real war against them. This includes an abnormal tax burden, dubious investment policy, and strange export-import regulations. All this may in fact make the nation's industry persona non grata in its own country. The problem of effective ownership in industry has not been solved either, for privatization is being carried out proceeding from certain very dubious considerations, far from the interests of Ukraine's industry.

An extraordinarily distinct situation is arising. The absence of market reforms in industry has made industrial managers (especially those referred to as red directors) dream about bringing back the administrative command system with its leading role of the state, and not about a truly reformed economy. Moreover, this really influences their electoral preferences, not at all in favor of the incumbent President. Agriculture can also not exactly be regarded as the vanguard of presidential economic policy. In 1998, farm output fell by 8.3%. In 1999, the fall accounted for 2.8% in January and 2.6% in February. As in the case of industry, the absence of appreciable reforms will make today's President pay a high price.

The specific features of the nation's agriculture make it possible to state that agricultural producers would prefer to return to the Soviet times than really try to ensure the competitiveness of their production. In conditions where the authorities take dubious care of agriculture and do absolutely nothing to adapt farmers to market relations, the current President will surely be deprived of rural votes at the upcoming elections. No playing up to the countryside can now save the situation for the current regime.

Without going into detail about the sphere of commerce, one need only point out that for obvious reasons this is also far from being a constituency eager to embrace the current President.

SOCIAL DEVELOPMENT

The social sphere is one of the most potent levers militating against the incumbent President's reelection. As of April 1, 1999, total wage, pension, and other payments arrears reached Hr 11 billion, with budgetary debts accounting for Hr 4.4 billion, or 40% of the total. Even according to official data from the Ministry of Labor and Social Issues, half Ukraine's citizens have gross incomes below the official poverty line.

As before, the current authorities do not have any real mechanisms other than monetary emission to repay these debts. Such fabulous measures as the urgent privatization of Ukrtelekom or equally hasty sale of bankrupt enterprises, are no longer even mentioned by virtue of their obvious unsoundness. The same refers to the illusory hopes to receive "no-one-knows-whose" money precisely to repay social arrears.

Official data say the total number of registered unemployed in this country rose in 1994-1998 more than 12-fold. Real wages and salaries in 1998 were only 33.2% of their 1990 level and have even gone down slightly since 1994.

That Ukraine did not experience mass-scale social disturbances can be most likely attributed to the people's extreme patience and the overall feeling of hopelessness, rather than to the absence of real social reasons.

UKRAINE AND THE WORLD

No one needs persuading that Ukraine gets special treatment in the world. A country with an awesome foreign debt in terms of GDP ($1.2 billion as of March 1 this year) is always begging for more. What is more, the money thus obtained is squandered rather than used for true reforms in a country specializing in exporting ferrous metallurgical, chemical, and other unprocessed products. The more time passes, the stronger becomes the idea of this country as a territorial formation somewhere in Europe, but not as a "European state." And international reaction to the "President's powerful initiatives" on Yugoslavia only confirms this well-established truth. The issue is different: the socioeconomic situation inside the country.

Western analysts are seriously worried by the complete inability of the current authorities to normalize the situation even slightly. What worries them even more is Ukrainian officials' pathological isolation from reality. It is perhaps the presentation by Ukraine on April 18, 1999, at the annual session of the European Bank for Reconstruction and Development in London that put a tight lid on the prospects for our current rulers. In a very expensive and half-empty hall, our apparatchiks asserted in earnest that Ukraine would see an unheard-of growth in the second half of 1999 followed by overall prosperity. Such inadequacy puzzled even the Western wire services as to whether to present this information under the heading of curiosities or black humor.

In any case, the governmental and business circles of other countries see no prospects for the current authorities and say so openly. And the fact that the incumbent President received a perfunctory compliment from a foreigner is no occasion for popular exultation and exaggeration of this compliment.

ELECTION PROSPECTS

The election prospects are already quite obvious. The question is only about variations on the theme of what extent Ukraine will be devastated by the elections and how deep a hole the new President will have to pull the country out of. In this case, printing new paper money, the non-receipt of new real money from international lending organizations, state budget deficit, and many other things may be regarded as supplements to the obvious prospects. Also of importance is forecasting the people's societal activity: will it take to the streets before the elections or will it express its attitude toward those in power during the elections?

The current President stays quiet, and he really has nothing to say. One can make tours of the country and upbraid central and local authorities, creating the image of a dissident President: one can brandish the bogey of a Red Peril, thereby increasing the Left's popularity: one can try to emerge on the international arena with certain initiatives (no matter what kind); and one can do other things to imitate activity. The socioeconomic situation will never change for the better under the current President. And Kuchma's promises not to run for the reelection unless the socioeconomic situation changes have not been kept, and no wonder: this has become his familiar style when it comes to his obligations. There is one quite clear conclusion: the voters will make the right choice.