End Note: UKRAINE'S LACK OF DIRECTION JEOPARDIZES REFORM xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
UKRAINE'S LACK OF DIRECTION JEOPARDIZES REFORM
Seven years into its post-Soviet experience as an independent state, Ukraine has distinguished itself as much by what it has avoided as by what it has accomplished. On the one hand, the country has managed to escape the deep ethnic divisions many predicted and, for the time being at least, has sidestepped the near total economic and social collapse Russia has undergone. But at the same time, Ukraine has also avoided many of the critical reforms necessary to pave the way for long-term prosperity.
Thus, Ukraine now finds itself at a crossroads, uncertain whether the belated implementation of strict reforms would generate Polish-style prosperity or Russian-style destabilization. The reluctance to proceed with an ambitious program of painful measures is in many ways understandable. Average Ukrainians have suffered enormous hardships since 1991. If asked to endure even more in a bid to achieve the promised, albeit theoretical prosperity, many Ukrainians would answer "no."
A kind of symbiotic paralysis has developed between Ukraine's political decision-makers and the country as a whole. Each knows action must be taken, but neither is able to identify the force that could act as the catalyst for change.
Recognizing this, the Communists, in cooperation with leftist forces in the parliament, point to Russia's difficult experience with Western-style reform to bolster their argument for taking a different course at home. The battle lines are visible in the current dispute over the state budget, in which members of the opposition are heavily attacking the government's proposed budget as endangering Ukraine's social safety net.
While Russia's difficulties loom large on Ukraine's eastern border, a more constructive example is provided by Poland, to the West. Poland's success did not come easily. The economic recovery, which began in 1992, was preceded by nearly three years of economic suffering and social dislocation.
After the fall of communism, Poland was indisputably in a better position than Ukraine to make the difficult post-Soviet transition, but despite the initial hardships, Poland has steadfastly stayed the reform course. It now is enjoying the rewards of its hard-fought efforts. Poland has achieved rapid private-sector growth, estimated at 10 percent annually from 1995 through 1997. Unemployment has been steadily declining and is now under 10 percent, down from a high of 16 percent in 1994.
Moreover, Poland has attained positive GDP growth annually over the past six years. Foreign investors have acknowledged Poland's commitment to economic reform. From 1990 to mid-1997, total foreign investment in Poland was $16.2 billion. By comparison, foreign investment in Ukraine from independence in 1991 through the third quarter of 1998 totals $2.6 billion. Of course, as long as the Ukrainian authorities dither over reform, foreign investors will be reluctant to commit significant resources to the Ukrainian market.
Ukraine should also consider the implications of Poland's growing prosperity and its entry into the Western sphere of influence. To both countries' credit, they have worked assiduously to forge a balanced and constructive relationship. However, the EU is asking Poland to take firmer steps on a number issues related to Poland's eastern neighbors. For example, Warsaw is facing considerable pressure from Brussels to tighten border restrictions with Ukraine, but for the time being it has refused to impose visa requirements on Ukrainians.
At home, Ukraine is beset by a host of other problems, including pension and wage arrears, rampant organized crime, and widespread official corruption. A burgeoning shadow economy has evolved in response to the dysfunction of the official market. The shadow economy, along with the many individuals and businesses that flout the law, accounts for a huge loss in desperately needed tax revenues. In fact, the authorities' frustration with widespread tax evasion payment was revealed last summer when Prime Minister Valeriy Pustovoytenko ordered 1,500 business executives to a tent camp outside Kyiv until they paid delinquent taxes.
Other evidence of Ukraine's economic weakness is observable in the vast number of Ukrainians who travel abroad in search of employment. Large numbers of Ukrainians work as manual laborers in the Czech Republic, Poland, Germany, and other countries for periods of several weeks or months. Many of these jobs are run by Ukrainian gangs or criminal syndicates that claim to offer safe transport, employment documents, and a large amount of money by Ukrainian standards. After completing their terms of employment, many are disappointed to learn that they will receive only a bus ticket back to Ukraine, if that.
By venturing westward to countries that already belong to the EU or are within striking distance of joining that organization, these Ukrainian workers are implicitly acknowledging the direction their own country should take.
End Note: UKRAINE'S LACK OF DIRECTION JEOPARDIZES REFORM xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
UKRAINIAN CABINET FORECASTS INFLATION AT 20 PERCENT NEXT YEAR... The government has increased its projected inflation rate for 1999 to 20 percent from 7.8 percent, AP reported on 26 November. The revision came after President Leonid Kuchma criticized the draft 1999 budget the previous day, saying it was based on figures worked out before Russia's financial crisis impacted on Ukraine. Kuchma also repeated his former proposal that the government allow the hryvnya exchange rate to float freely. JM
...WHILE CENTRAL BANK VOICES WARNING. The Ukrainian National Bank on 27 November warned that the economy and the currency will collapse if the government allows the hryvnya to float freely and inflation to reach the projected rate of 20 percent. A floating exchange rate will "cause the currency to devalue, trigger inflation, and ruin the economy," AP quoted a bank representative as saying. Bank chairman Viktor Yushchenko said the same day that he sees "no fundamental reasons" to devalue the national currency. "The hryvnya is in a strengthening trend," Ukrainian News quoted him as saying. JM
KUCHMA ACCUSED OF INTERFERING IN MURDER TRIAL. Amnesty International has accused President Kuchma of violating the principle of the independence of the judiciary and the right of the accused to be presumed innocent. That accusation is in relation to the ongoing trial of a serial killer who has confessed to murdering 52 people. "As a human being I cannot see any punishment for him other than death," Kuchma said on 23 November. Amnesty International also said Kuchma's statement puts at risk the existence of a moratorium on executions in Ukraine. Kuchma's spokesman dismissed the criticism, saying that the president "has always considered Ukraine's judiciary to be independent," AP reported on 27 November. JM
MEDIATORS SUBMIT DRAFT AGREEMENT ON TRANSDNIESTER'S STATUS. The international mediators in the Transdniestrian conflict have drafted an agreement for settling the conflict between Chisinau and the separatist region, Infotag reported on 25 November. John Evans, head of the OSCE permanent mission, and the Russian and Ukrainian presidential representatives on the mediation commission said they have submitted the draft agreement to President Petru Lucinschi and to Transdniestrian leader Igor Smirnov. They also said the document fully respects Moldovan sovereignty, independence, and territorial integrity, while envisaging a special status for the Transdniester region. The mediators stressed the two sides are free to submit their own proposals to improve the document. Addressing the parliament in Chisinau on 27 November, Parliamentary Assembly of the Council of Europe chairwoman Leni Fischer said the Council of Europe will support a summit aimed at solving the Transdniester conflict. MS
UKRAINE'S LACK OF DIRECTION JEOPARDIZES REFORM
Seven years into its post-Soviet experience as an independent state, Ukraine has distinguished itself as much by what it has avoided as by what it has accomplished. On the one hand, the country has managed to escape the deep ethnic divisions many predicted and, for the time being at least, has sidestepped the near total economic and social collapse Russia has undergone. But at the same time, Ukraine has also avoided many of the critical reforms necessary to pave the way for longterm prosperity.
Thus, Ukraine now finds itself at a crossroads, uncertain whether the belated implementation of strict reforms would generate Polish-style prosperity or Russian-style destabilization. The reluctance to proceed with an ambitious program of painful measures is in many ways understandable. Average Ukrainians have suffered enormous hardships since 1991. If asked to endure even more in a bid to achieve the promised, albeit theoretical prosperity, many Ukrainians would answer "no."
A kind of symbiotic paralysis has developed between Ukraine's political decision-makers and the country as a whole. Each knows action must be taken, but neither is able to identify the force that could act as the catalyst for change.
Recognizing this, the Communists, in cooperation with leftist forces in the parliament, point to Russia's difficult experience with Western-style reform to bolster their argument for taking a different course at home. The battle lines are visible in the current dispute over the state budget, in which members of the opposition are heavily attacking the government's proposed budget as endangering Ukraine's social safety net.
While Russia's difficulties loom large on Ukraine's eastern border, a more constructive example is provided by Poland, to the West. Poland's success did not come easily. The economic recovery, which began in 1992, was preceded by nearly three years of economic suffering and social dislocation.
After the fall of communism, Poland was indisputably in a better position than Ukraine to make the difficult post-Soviet transition, but despite the initial hardships, Poland has steadfastly stayed the reform course. It now is enjoying the rewards of its hard-fought efforts. Poland has achieved rapid privatesector growth, estimated at 10 percent annually from 1995 through 1997. Unemployment has been steadily declining and is now under 10 percent, down from a high of 16 percent in 1994.
Moreover, Poland has attained positive GDP growth annually over the past six years. Foreign investors have acknowledged Poland's commitment to economic reform. >From 1990 to mid-1997, total foreign investment in Poland was $16.2 billion. By comparison, foreign investment in Ukraine from independence in 1991 through the third quarter of 1998 totals $2.6 billion. Of course, as long as the Ukrainian authorities dither over reform, foreign investors will be reluctant to commit significant resources to the Ukrainian market.
Ukraine should also consider the implications of Poland's growing prosperity and its entry into the Western sphere of influence. To both countries' credit, they have worked assiduously to forge a balanced and constructive relationship. However, the EU is asking Poland to take firmer steps on a number issues related to Poland's eastern neighbors. For example, Warsaw is facing considerable pressure from Brussels to tighten border restrictions with Ukraine, but for the time being it has refused to impose visa requirements on Ukrainians.
At home, Ukraine is beset by a host of other problems, including pension and wage arrears, rampant organized crime, and widespread official corruption. A burgeoning shadow economy has evolved in response to the dysfunction of the official market. The shadow economy, along with the many individuals and businesses that flout the law, accounts for a huge loss in desperately needed tax revenues. In fact, the authorities' frustration with widespread tax evasion payment was revealed last summer when Prime Minister Valeriy Pustovoytenko ordered 1,500 business executives to a tent camp outside Kyiv until they paid delinquent taxes.
Other evidence of Ukraine's economic weakness is observable in the vast number of Ukrainians who travel abroad in search of employment. Large numbers of Ukrainians work as manual laborers in the Czech Republic, Poland, Germany, and other countries for periods of several weeks or months. Many of these jobs are run by Ukrainian gangs or criminal syndicates that claim to offer safe transport, employment documents, and a large amount of money by Ukrainian standards. After completing their terms of employment, many are disappointed to learn that they will receive only a bus ticket back to Ukraine, if that.
By venturing westward to countries that already belong to the EU or are within striking distance of joining that organization, these Ukrainian workers are implicitly acknowledging the direction their own country should take.