Or what caused the Mytiukov-Symonenko confrontation

Valentyn SYMONENKO said, “The Board of the Accounting Chamber has arrived at the conclusion that the government’s performance in fulfilling the 1998 budget is extremely ineffective and unprofessional, especially with regard to the revenue items.

“Their task was to secure the completeness and timeliness of tax returns and other payments to the budget. What we actually have is, first, a shortage increment of 4.2 times in 1998, in other words payments accrued but never made; second, growing tax concessions extended to hand picked taxpayers. Their total amount increased by 51% over the accounting year, amounting to almost UAH 30 billion, which is 3% more than all budget revenues at all levels throughout Ukraine.

“Talking of the budget expenditures, with a nominal GDP increment of 3.9% in 1998, state budget disbursements declined 15.4% compared to 1997, or 25.2% in real terms. What is this, miscalculated planning or incompetent performance? Or maybe someone’s interests that had to be protected? In 1998, disbursements were financed not in accordance with the law but as was deemed expedient in a narrow circle, including the so-called limits of the Finance Ministry. And the total amount of implementing the state budget expenditures made up 75%. Finance Ministry statistics say UAH 11,600,000,000 went to repay and service the public debt of Ukraine. In actuality, our computations show that the amount spent on that is UAH 12,500,000,000, which is comparable to the 77% budget revenues for 1998.

“When performing the budget, the Cabinet did not comply with the law On the State Budget of Ukraine for the Year 1998 saying that all back wages must be repaid. During the year the said back wages were not repaid from the state budget; moreover, they increased by over UAH 27 million. And nor was Article 19 of the budget law complied with in terms of financing expenses envisaged by the protected items on a top priority basis. The 1998 budget protected expenditures amounting to UAH 16.1 billion. Actually, UAH 12.1 billion was allocated for their financing, which is 75% of the stated amount.

“Expenses involved in servicing the public debt, replenishing state reserves, industries, power generating, and state administration were financed above the average level. In other words, the law determined certain priorities which were practically replaced. Why?

“First, because legal support of the Ukrainian budget implementation was not constructive as a process; moreover, it served to destabilize the budget process.

“Secondly, in the second half of 1998 three elements of law applied at the same time, governing the implementation of the state budget expense items. The blatant failure to fulfill Article 95 of the Constitution destabilized the budget process and actually made the implementation of the 1998 budget strategy impossible.

“Third, non-cash payments increased, producing a negative effect on budget implementation. In 1998, the settlement of interenterprise arrears and bills came to UAH 2,801,000,000 in terms of budget revenues, or by 17%, while the law allows precisely UAH 645 million. Budget revenues in the Autonomous Republic of the Crimea, oblasts, and the cities of Kyiv and Sevastopol were fulfilled by 33% of the total amount by way of such settlements and bills.

“All told, the consolidated budget revenues were carried out to the tune of UAH 6,800,000,000 by the settlement of interenterprise arrears and bills, which is 24% of the actual amount received by the Ukrainian budget. We are positive that this purely Ukrainian practice of budget implementation is destroying the market and is food for corruption.

“Fourthly, a negative effect on the legality of state budget implementation and use of its funds in 1998 was produced by the creation of the Ukrspetsfin so-called special state financial enterprise. It emerged as an illegal entity. Moreover, it received the status of a body of state administration, resulting in legal ambiguity. This entity was established to carry out unlawful non-cash operations to implement the budget.

“Fifth, the Treasury system of implementing the state budget remained ineffective and requires considerable improvement. Try as the Treasury did, it needs help to get out of the figures I am about to cite. Payment discipline at budget-sustained institutions worsened considerably. Their accounts payable rose by 32% in 1998. Totaling UAH 6,675,000,000 as of January 1, 1999. Simultaneously, their accounts receivable — i.e., goods and services paid for with budget money but never received — went up 39%, totaling UAH 886 million. In other words, they paid for the goods and now what? What expense item should this money be referred to? Maybe it is being kept secret?

“However, the main reason is in the complete absence of responsibility for implementing the state budget law on the part of ranking state executives. In other words, what we have is an irresponsible state.”

From the standpoint of the Finance Ministry headed by Ihor MYTIUKOV, the Accounting Chamber’s findings contain a number of procedural errors. Can one consider objective the allegation that the Finance Ministry failed to reflect in its budget progress report 900 million hryvnias spent on servicing and repaying the public debt? Such payments were really made, but they could not be included in the report, because they were made by the National Bank using its own resources, by way of repaying the debt to the International Monetary Fund. Those making such inferences ought to know that IMF credits are channeled to maintain the balance of payments and national currency exchange rate. Their servicing and redemption is the National Bank’s responsibility.

The Accounting Chamber notes that the legal support of state budget implementation was not a constructive process, and the elements of law were enacted changing budget income and expense items. It is necessary to ascertain who this accusation is addressed to. The said elements of law reducing income items compared to the amounts stated in the budget law for 1998 were enacted by Verkhovna Rada. If the Accounting Chamber is auditing Parliament, it should state so in the open.

The Finance Ministry further sees bias in the Accounting Chamber’s attitude toward the priority financing protected budget expense items. Compared to the overall 75.1% of implementation of the state budget, expenses in terms of wages and accruals thereon amounted to 84.3%, 87.3% in terms of pensions to servicemen, and 78.2% stipends. It should be borne in mind that the planned amount spent using protected budget expense items equaled that of actual state budget incomes. Then what about disbursements in terms of electricity and central heating for hospitals, daycare centers, educational establishments and research institutions, let alone financing the coal industry, agribusiness, and so on?

The allegation about Ukrspetsfin and its negative effect on state budget implementation is unfounded. Executing state budget income and expense items via Ukrspetsfin should be regarded as an alternative to the settlement of interenterprise arrears. Use of bills makes it possible to render such settlements transparent, because they have to be performed in the presence of all the parties concerned; it also considerably shortens the paperwork procedures. Over the period since its inception, Ukrspetsfin has used Treasury bills, contributing UAH 88 million to the budget, rather than allowing this money to settle in the bank accounts of intermediary firms, as was the case at the time of protocol interenterprise settlements.

EDITOR’S NOTE:

Such a confrontation between two budget-involved agencies against the lamentable picture of state finance was inevitable. Under different circumstances, with the Ukrainian budget being economically sound, this debate would have never gone farther than the office walls, because such accounting and reporting nuances or law-abiding precision would not be particularly interesting to most laymen. In today’s Ukraine, the state budget has political aspects that remain topical (e.g., power, access to finance, etc.). Hence any event, last year’s budget approval included, gives rise to political debate. Incidentally, the Editors were informed that the Accounting Chamber, after receiving an official document motivating the Finance Ministry’s dissent, will make public its response.