By Oleksiy PLOTNYKOV, Doctor of Economics
In the fall of 1997 the current President announced he would run in the
1999 elections if the socioeconomic situation changed for the better. Unfortunately,
top state authorities have not even tried to really change it all that
time. Moreover, since the beginning of this year, the President has actually
not made public a single new initiative in the economic field, confining
himself to citing the ongoing processes. The destiny of this year's Presidential
address to Verkhovna Rada is not quite clear. And there are reasons for
this silence by the President.
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.






