Budget Balancing Put Off to Fall

The favorite game of Ukrainian lawmakers, apportioning state funds, began on June 18 with the government’s report on last year’s national budget. Although Finance Minister Ihor Yushko was appointed to his post in January, he had to hear a great deal of criticism of the work done by his predecessor Ihor Mitiukov. Under the pressure of witticisms and calumny, Yushko stuck to his position of “Don’t hang me for the bad news.”

As the Finance Minister said in his report, the aggregate implementation of the state and local budgets totaled 103%. As he explained, some of their sections were not funded in full because of problems of the central budget, which was implemented only by 85%. He declined to comment on the information that Ukrtelekom was transferred to the jurisdiction of a privileged territory of priority economic development and paid neither the VAT nor income tax. The yet unconfirmed information was obviously news to the minister. Mounting a counterattack, the chief financier criticized the parliament for writing off tax debts last year and for its inability to create a legislative basis for solving the problem of reimbursement of VAT to exporters. But in spite of his forestalling strikes, the minister was criticized from all sides.

Budget Committee Chairman Petro Poroshenko complained that he could not obtain complete information about the implementation of the budget. Moreover, even the Finance Ministry did not always possess all the data requested. Poroshenko was especially concerned about the fact that the ministry failed to comply with the law, under which the government is to submit its budget report to the parliament by May 1 the following year. Minister Yushko explained this by the huge amount of work with summary accounts: the ministry just ran short of time, he said. Poroshenko was not satisfied with such an answer. He suspected the cabinet of hands on running of budget expenditures. According to his information, the police and other law enforcement bodies received 95% of the planned appropriations while health care and education got 70-75%. As Trade Union Federation leader Stoyan said in this connection, Ukrainian medical workers are planning a strike in August.

The government’s budget policy was also criticized by Chairman of the Accounting Chamber Valentyn Symonenko. According to his calculations, last year the state budget received UAH 58 billion [$11 billion] less than planned. As he contended, it was a mistake to write off tax arrears. He said that the budget was affected by a vicious practice of procrastination: “Companies suddenly stop paying taxes and wait for the debts to be written off soon.” When Symonenko was asked why the Accounting Chamber did not use the First Amendment to the Constitution which gives it the right to not only monitor budget flows but also control them, he complained about the absence of authority and of full access to information. “They simply don’t let us in,” Symonenko told the Finance Minister.

To see how budget funds were used, both the Budget Committee and the Accounting Chamber used current data provided by the State Treasury rather than the Finance Ministry’s report, which was in any case unavailable. But even that was enough for the committee to recommend that the parliament condemn the Finance Ministry’s work as unsatisfactory. According to Poroshenko, the recommendation was supported by all members of his committee except one. This means that even some members of the For a United Ukraine faction were unsatisfied with the budget policy of Anatoly Kinakh’s government. “I have reason to expect the parliament to approve the committee’s resolution,” Poroshenko said. Parliament Speaker and leader of the United Ukraine faction Volodymyr Lytvyn told the deputies “just in case” that the resolution would entail no legal consequences for the Cabinet of Ministers.

Poroshenko is one of the leaders of the Our Ukraine faction. Its immediate tactical objective is to replace the Prime Minister. Thus, the voting on last year’s budget may well become a dress rehearsal of the government’s fall. Or at least it will teach the government to reckon with the parliamentary players when the 2003 budget is drawn up. It is absolutely clear that the figures demonstrating the government’s weak budgetary policy will be the first corpus delicti in Anatoly Kinakh’s case. The main battle will start when he presents his government’s Action Program. All the flaws in last year’s budget will come handy then. In fact, the new minister’s report to Verkhovna Rada has no other meaning.

“I’m sure the motion will attract the necessary number of votes to pass a resolution censuring the Cabinet of Ministers for failure to fulfill the 2001 budget,” said Budget Committee Chairman Petro Poroshenko on June 20. Yet, the chairman miscalculated twice. The draft resolution introduced by the majority (288) never polled the required 226 votes even in two tries.

Analysts view this, undoubtedly a boon for the government, as a temporary respite — and not only because the budget committee was told to redraft the resolution to be voted on in the next plenary week that begins July 2. It is unlikely that Deputy Poroshenko will manage to find additional economic arguments against the government in the time remaining. The Verkhovna Rada decision in no way means that the Kinakh Cabinet has no problems with budget fulfillment. The truth is that when Mr. Poroshenko claims there is disproportion between GDP growth and the unchanged budget, his financial conclusions are of not only vague but also of a clearly political nature.

Moreover, Anatoly Kinakh still has time to modify his proposals to the Solons. In this context, sweeping accusations, Mr. Poroshenko’s style, simply appear untimely. The strongly worded budget note to the Cabinet of Ministers coupled with the fiasco of the government program (as is said in parliamentary corridors) is a good occasion for Mr. Kinakh’s fair-weather friends to put forth the question of replacing the premier. But tearing down is easier than building up. It is difficult to imagine that, after passing a vote of no confidence, the people’s deputies, who recently vied so long and frantically for committee posts, will reach a consensus on ministerial portfolios before July 12. Nor does it make sense to leave this country without a premier during the summer recess. The Day was told that it is not ruled out that this is exactly the message that some Party of Regions representatives have tried to put across to Our Ukraine leader Viktor Yushchenko, emphasizing that he should wait until autumn. It will be noted in this connection that rumors about a deal and a mysterious Our Ukraine candidate for premier have subsided somewhat. It will also be recalled that President Kuchma, when delivering his message to the parliament, agreed to discuss the candidacy of a new premier only with the parliamentary majority.

Will Mr. Kinakh manage to enlist the required support in Verkhovna Rada by fall? Whatever the case, the premier will have to address this problem with the aid of United Ukraine defectors. The parliamentary corridors are full of rumors that even the Labor Ukraine faction, which has sided with the Party of Industrialists and Entrepreneurs, has its own view about the future prime minister.

Mr. Poroshenko also said his committee’s resolution-related complaints about the cabinet are “extremely professional,” which left journalists surprised. In his opinion, the required resolution is certain to go through (like the previous one? — Author). “We have taken into account the remarks of 300 deputies and all the committees,” Mr. Poroshenko said, emphasizing that the budget committee decided “to apply the most acceptable sanctions against the government.” Now in plain language: under the Budget Code, the committee in question can display two reactions to a budget resolution: approval or disapproval. In the latter case, which Mr. Poroshenko was in fact speaking of, the committee censures the government for all shortcomings.

“One must not overestimate the importance of a budget resolution,” Valery Konovaliuk told The Day, refraining from further comment. He was partly right, for the government and people’s deputies will be addressing all specific budgetary problems in the fall. Something else is interesting now: it is after October 1 that the budget committee will grill the government for all the macroeconomic faults it may find in the 2003 budget in July. Experience shows that the government’s macroeconomic forecasts tend to vary on the eve of a new year. And whether the budget committee will change its attitude toward the government will surely depend on who will head it and on what this who will offer to the budget committee leadership.

So far, both Mr. Poroshenko and Mr. Konovaliuk appear bellicose. The former has found UAH 4 billion in revenue hidden by the cabinet, suggests including privatization earnings directly into budget revenues (which he himself opposed when his predecessor Oleksandr Turchynov insisted on this during the 2002 budget debates), and is minutely calculating the relationship between the allegedly incorrect percentages of supposed GDP growth and state revenues. The latter agrees to all this, clearly intending to sacrifice the hryvnia’s future stability. Will the budget committee and the Ministry of Finance be able to plan the 2003 budget in such a way that entrepreneurs will not have to take urgent rescue measures? This point seems to be of little interest to anybody. But are there any more important problems on the agenda?