Ukrainian Economy Awaits American Visa

The Ministry of Foreign Affairs and the Ministry of the Economy and European Integration of Ukraine intend to cushion the disappointment Ukraine feels again over delays in being assigned the status of a market-economy country by sending an indignant note to the office of the US Trade Representative. Minister Oleksandr Shlapak promised to send the note as early as this week and ask the Americans to give “an official explanation of why and for how long they have deferred [this decision].” Yet, the minister immediately added that the note would also ask if Kyiv must do something more to obtain the coveted status.

Since 2001 Ukraine has been actively trying to receive the status of a market-economy country, which provides some edge in antidumping investigations of Ukrainian goods and, in the final analysis, impacts on the amount of hard currency earnings and the hryvnia’s stability. For the more dollars and euros this country has, the better the demand for them is met and the better the national currency feels. Our impatience in this matter can also be explained by the fact that Russia has already been granted market status (with no more economic reason that we can think of, except bases in Central Asia — Ed.) and its steel mills are slated to sign on September 23 an agreement to supply metal products to the US market. Moreover, since the US has pronounced Russia a market-economy country, negotiations are being held directly between producers and buyers, not governments.

Meanwhile, an undisclosed Ukrainian government representative explained to Interfax-Ukraine that in this quest our country has enlisted the support of US exporters working in Ukraine, including the consumers of Kryvorizhstal rolled metal, but failed to secure support from US-based companies. In his opinion, this deferment is not a positive thing in relations between the two countries and will not improve the positions of Ukrainian exporters. In fact, this kind of approach was easy to predict. It became apparent even during the visit to Ukraine of US Treasury Secretary Paul O’Neill in June that “a genuine impulse in granting Ukraine the status of a market-economy country could be given by Ukraine-based US companies.”

But, as the chief US financier said then, if the firms consider they are being “mistreated,” especially in the VAT refund question, they “are unlikely to send this kind of letter.” He illustrated this with the experience of Cargill, a US company that, in his words, has some problems, working in Ukraine. It will be recalled here that Prime Minister Anatoly Kinakh recently demanded that the State Tax Administration call off the three infamous letters that in practice hinder the Ukrainian exports and refunds of the VAT to exporters. Yet, nothing has been heard of any replies.

Such annoying exceptions apart, we see signs of a market economy on every street corner. Ukrainians feel the positive, as well as some negative, features of this every day. It ignites never-ending public debates, both on the micro and macro level, which in itself means that society has accepted market values. This must be the greatest tangible achievement in our country. For example, NBU Board Chairman Anatoly Halchynsky recently said he thought the Verkhovna Rada Committee on Finance and Banking was wrong to suggest that the difficult state budget fulfillment situation might be eased by a controlled increase of inflation and National Bank money emission. He emphasized that the NBU board, exclusively empowered by the Constitution and the law on the National Bank of Ukraine to address the whole range of monetary issues, including the emission, has not discussed this matter. “I am sure,” Mr. Halchynsky stressed, “that the NBU board will in no way agree to major changes in the monetary policy.” Mr. Halchynsky is convinced that maximal stabilization of the national currency will remain the main line to follow. In his words, “returning to the times when budget deficits were covered by means of emission could have disastrous economic consequences.”

Incidentally, in an interview with The Day, the NBU board chairman denied rumors that the National Bank has already emitted UAH 3 billion, although he confirmed that this country had seen lately a rapid growth of the money mass. As to the investment-projects-oriented emission, Mr. Halchynsky says this matter “is still under consideration.” As he explained, the point is that a certain part (according to him, UAH 800 million, not 3 billion) of the money to be issued under the relevant laws will be allocated to commercial banks to implement innovative target-oriented long-term projects. Mr. Halchynsky believes this is a normal worldwide practice, the only innovation being that, while previously the National Bank refinanced commercial banks exclusively with short-term money, which in turn affected the term of their loans to industry, now it is the question of long-term loans. All that worries Mr. Halchynsky is that the money emitted and given to industry somewhat narrows the National Bank’s ability to replenish its hard-currency reserves (in 2001 90% of the emitted money was utilized precisely for this). To avert the danger of inflation, the National Bank is not going to increase its emission.

As we see, there is quite a sound debate going on at the macro level, with all the accents, dangers, and the required compensating factors taken into account, as it should be in a market-economy country, in which certain ups and downs are inevitable. As to the delay in “issuing Ukraine the market-clearance US visa,” Mr. Halchynsky thinks “political factors are obviously involved here... I know all too well the reform situation in Russia, which was awarded this status recently, and I absolutely see no qualitative differences between our countries, Halchynsky says. I received the other day a fax from the International Monetary Fund, saying that Ukraine, along with some other countries, is an “advanced reformer.” The critical mass of market-oriented transformations necessary for pronouncing Ukraine a market-economy country is quite sufficient, Mr. Halchynsky believes. “We are fully prepared to prove this at the negotiating table,” he asserts. The share of private property in the nationwide structure of ownership (over 70% in industry, 100% in trade, and 100% in construction) and liberalized price-formation show that Ukraine meets the world criteria of a market economy. On the other hand, our economy is still at the stage of development, which is not an excuse for denying us market status, the he chair concludes.

Another banking functionary, head of the National Bank governor’s group of advisors Valery Lytvytsky, told The Day that, by all accounts, Ukraine quite fits in with all standards set for market-economy countries. So, in his opinion, any delays with making a positive decision on this matter are unwarranted. According to Mr. Lytvytsky, one of the aggravating (and perhaps objective) circumstances in this field is the suspension of relations with the International Monetary Fund and something of a wait-and-see attitude on the part of the World Bank. In his view, despite frequent criticism, these organizations are the world’s best analytical centers with opinions to be reckoned with.