Kryvorizhstal: What to do with the money?

The resale of Kryvorizhstal, which over the past few months caused a lot of problems for the Ukrainian political community, has led to another one: What to do with the proceeds? If mishandled, this money could give rise to the serious threat of inflation. But not everyone is aware of this threat. The auctioneer’s mallet had hardly come down when everybody started dividing the 24 billion hryvnias. Finance Minister Viktor Pynzenyk, for example, recently declared that this money would be used to repay part of the country’s foreign debts. His idea was supported by the directors of the International Monetary Fund. On Nov. 16 the finance minister announced that the Kryvorizhstal proceeds have long been divided up in the 2006 draft budget (less the sums payable to the former owners of Kryvorizhstal): 7.9 billion will be used to cover the remainder of this year’s budget deficit; it has been suggested that 9 billion be used the same way with regard to the 2006 budget deficit, while 3 billion hryvnias will be used to create a stabilization fund “for subsequent years,” reports the Internet publication Liga. There is a different mood in the Ukrainian parliament. Some say that the Kryvorizhstal proceeds should be used to support agriculture, state banks, and so on. What the government intends to do is anyone’s guess. What the Ukrainian public knows so far is that this money must not spent on food, although there is no clear idea of what exactly should be done. The Day asked its experts for their opinions.

Oleksiy HOLUBYTSKY, deputy director, Situation Modeling Agency:

I think that this money should be invested in the future of this country by channeling it into various investment and innovative projects, but never just to pay wages, pensions, and social assistance, because this would only cause another inflation jump, without any positive prospects. I believe that now is the time to support sectors of the Ukrainian economy that are obviously underdeveloped: first and foremost, information technology. It is necessary to develop new types of production and technology parks, and to introduce new control systems at functioning enterprises and modernize them. We should also try to save the part of the economy that still can be saved without joining the WTO. Before we join that organization — and the EU in the long run — we must raise our economy to a more or less acceptable level. As for the debts they are going to pay ahead of schedule, I can say that we’ll have to pay our debts anyway, so I generally agree with Pynzenyk, who says that it would be better to do this now, so we won’t have to pay interest. But most of it should be spent on rejuvenating such sectors.

Ihor BURAKOVSKY, director, Institute for Economic Studies and Political Consulting:

First, we must return the money to the previous owners of the plant. Seco nd, part of the proceeds could be used to repay part of the state debt. Third, I’d recommend investing part of this money in a stabilization fund and also using it in somewhat different circumstances, for example, when there is no pressure from various political parties in connection with the upcoming parliamentary elections. On the eve of the elections the government will also be pressured by various financial- industrial groups. In addition, with this stabilization fund I would think about how to use such a reserve to carry out a pension reform, for example, because the situation with the Pension Fund deficit poses a certain economic threat to the state, perhaps no less so than rising energy prices.

I think that using this money for development and investment programs will not yield any results, so it’s better to keep it in reserve and see how the situation develops. If this money starts being used now, it will be eaten up, no matter how attractively the process will be described.

Oleksandr PASKHAVER, advisor to the president of Ukraine:

We know the principles according to which the proceeds from onetime transactions — state property sale operations — should be spent. They must never be channeled into current disbursements because this money cannot be constantly reproduced; next year we won’t have such a source. It’s a simple and wise principle. As for concrete approaches, apparently this money will cover this year’s budget deficit and part of next year’s. I like the stabilization fund idea, as it will be raised to provide for possible disbursements. We must answer the question of how this fund will be used. The fact remains that it will allow us to slow down the process of spending this money, but first it must be carefully regulated by legislation. Generally speaking, the best thing we could do in the future would be to spend this money on an industrial infrastructure, i.e., to place projects in it that will allow us to raise the efficiency of production and finally yield additional revenues. For example, the construction of roads and sewer systems in remote regions of Ukraine will instantly boost land and construction prices. This is one example of how this money should be used.