Straight talking
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Straight talking

In an interview with Emerging Markets on the eve of EBRD’s annual meeting in Kiev, president Viktor Yushchenko laid out his principal concerns for Ukraine’s economy. The following is an extract from the interview


By Taimur Ahmad

In an interview with Emerging Markets on the eve of EBRD’s annual meeting in Kiev, president Viktor Yushchenko laid out his principal concerns for Ukraine’s economy. The following is an extract from the interview



EM: Many people say that the divisions between president and prime minister are paralysing Ukraine politically. This is perceived in business circles as a greater obstruction to progress than it was last year. What do you think?

VY: Any disagreements between the president and the prime minister of Ukraine at the present time are not personal, but are concerned purely with discussions over the running of the state.

As the head of state I am concerned with the state of the economy, the level of inflation, rising prices for basic goods, and also with the government’s privatization policy. The measures being taken by the government to fight inflation are ineffective. Rising prices for basic goods and services have had an effect on every Ukrainian family. Each and every government body must fight this raging inflation that has been allowed to come about in cooperation with parliament.

The government’s privatization policy raises many questions because state assets are being sold off in a haphazard and unconsidered manner. On top of that, there is no plan for privatization for the next three–five years. Why, for example, does the selling off of factories and manufacturing enterprises take place not when it is profitable for the state, but when it is profitable for the government? Why are the proceeds from privatization not going toward the development of the economy, but are being used to finance ongoing budgetary expenses? Unfortunately, this “sweet” populism is giving us extremely dubious results, and is only cranking up inflation and leading to the impoverishment of the people.This kind of economic situation is not to my taste, nor to that of the Ukrainian people.  It is keeping those foreign investors who have already invested capital in our country on tenterhooks, and is scaring away potential investors.

As president, I am obliged to keep control of all the activities of government bodies, both legislative and executive, and I will carry out this duty, because what I do is intended to bring about the full development of the Ukrainian state and the prosperity of the Ukrainian people. So if I see anything getting in the way of this, I will make every effort to correct the situation and the actions of all government bodies.

At the same time, the healthy discussion concerning the development of the state which is going on right now in the world of Ukrainian politics should not strike fear into anyone, neither here nor abroad. An independent Ukraine is unthinkable nowadays without these signs of democracy.

EM: The state statistics committee reported cumulative inflation for January-March as 9.7%. You have talked about stimulating domestic food production as a means of tackling inflation. But are stronger short-term measures not needed? Under what circumstances might administrative price controls be acceptable?

VY: The key element in inflation in Ukraine at the moment is inflation in food prices, so we are paying particular attention to the question of state support for the agricultural sector, and this may result in the targeted refinancing of banks in order to supply credit to the agricultural sector, as well as most of the money proposed by the budget for the development of the agricultural sector being allocated as early as the first half of 2008, and ensuring that the Agrarian Fund has the required level of resources at its disposal.

Among the short-term measures which may play a central role in achieving stability of prices, I would like to mention the following: steps to slow down the rate of growth of consumer credit; ensuring the sound functioning of the market in agricultural land, which will help in attracting investment in the agrarian sector, and, as a result, increase supply in the agrarian market; allocating all proceeds from the privatization of state property to development (the implementation of innovative and energy-saving technologies); accelerating the development of Ukraine’s stock market, and, in particular, by organizing issues of state and municipal securities for sale to the people of Ukraine with a guaranteed rate of return, with the proceeds being allocated exclusively for the financing of local development projects; facilitating the flotation and circulation of state securities and local currency bonds mostly on the stock markets, and carrying out measures to accelerate the development of the derivatives market.

EM: As president, and as an economist by profession, what do you regard as the main challenges facing Ukraine in terms of economic development?

VY: First of all I would like to point out that the Ukrainian economy is continuing to expand in a stable manner. At the same time we realize the necessity of finding adequate answers to the serious challenges that stand before the country’s economy.  

Above all, there is the intensification of inflationary tendencies. In my opinion, the government has enough instruments at its disposal to reduce inflation. We have to pay most attention to intervention measures, to increasing compliance with anti-monopoly legislation and the acceleration of structural reforms. The successful carrying out of these measures can only make for the maintaining and increase of Ukrainian citizens’ incomes.

It is necessary for Ukraine to pay constant attention to questions regarding increasing the energy effectiveness of the economy. In particular, we are refining our gas market and are bringing prices for energy resources to an economically justifiable level. In order to diversify the sources of energy supply, we are initiating the construction of a gas pipeline from the Caspian coast through Georgia, Azerbaijan and Ukraine, and on to countries in Europe. At the present time the issue of getting the Odessa-Brody oil pipeline working as planned is being actively discussed, as well as its extension to Plotsk, in Poland, in order to deliver oil to the countries of eastern Europe. In the area of electricity supply, we are working intensively towards integration into the European energy market and joining the UCTE [Union for the Coordination of Transmission of Electricity].

The next challenge is to establish an innovative way of developing the national economy, and there is no alternative to this under the conditions for joining the World Trade Organization and strengthening international competition. At my instigation, the government is completing the preparation of a whole series of legislative bills aimed at developing the market for innovative production.

It is undoubtedly the case that a new tax code will help towards substantially improving the business climate in our country, and I believe it is entirely possible that this will be approved by parliament before the end of this year.

EM: Key central Asian gas companies have announced they will charge “European” prices by 2009. How would Ukraine cope with such an increase? What is being done to reduce dependence on imported gas?

VY: In the first place, the full and efficient use of our own resources, both with respect to increasing output of our own energy resources and reducing the demand for energy.  The need to put together a programme for the extraction of coal-bed methane, refining coal into synthetic fuel and the production of biofuels has been under discussion for a long time already. With the rising costs of energy resources, this is a promising investment project. Ukraine is capable of providing not 25%, but 50% of its own natural gas by the treatment of liquid and gas carbohydrates lying on the shelf of the Sea of Azov and the Black Sea.

The diversification of energy supplies is vitally important. We are paying particular attention to the Odessa-Brody-Plotsk project, as well as examining the potential of the White Stream project. 

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