Ukraine's prime minister says pessimists are wrong.
The grand, imposing building that is Ukraine’s Cabinet of Ministers has the past clinging heavily to it.
By the time you reach the prime minister’s office on the seventh floor, you pass through three full security checks, leave your phone behind and walk along a row of oil paintings depicting all of Ukraine’s past government chiefs, starting from the 1930s, when the building first opened its doors.
Mykola Azarov, the current boss of this relic as well as the nation’s economy, looks organic in his office on Hrushevskoho Street designed in early Stalinist Empire style. He is often talked of as a man of the past – not just because he is 64 years of age.
He carries an aura from the previous era: a lack of patience for dissent, conservatism in his communication style. But he looks and sounds solid in the old way, too. He is reliable and hard-working. He has a Soviet technical education behind him and a career in academia.
But – most importantly – he says that he has a plan.
“We’re not going to sink – this is my first message,” he tells the Kyiv Post on Nov. 22 in his first formal interview with the newspaper in its 16-year history. “The government has different variants of how things will go, and different plans of action.”
Azarov says he can talk for hours about his plans, which are likely to be put through stress tests next year, when a new wave of the global economic crisis is predicted to hit.
Despite cheerfully reciting gross domestic product figures (up 5 percent this year, another 4.7 percent expected in 2012), the government is acutely aware of the challenges: International markets for Ukraine’s main exports are in bad shape, lending from the International Monetary Fund is frozen, aggressive corporate raiders exploit the nation’s weak courts in gangster-style takeovers, bureaucracy remains stifling, cash is lacking and consumers are not confident.
As for the dampening effect of corruption, over-regulation and high taxes on economic development, Azarov says: “What do you want to hear from me? That the situation is very hard on the markets? Yes, it’s very hard.”
Yet he gets cross with pessimists.
“God, I am tired of all this! Of all these pessimists,” Azarov says. “I know better than any of those so-called specialists, because in the course of a single day I control and analyze better than your specialists. However, I know what we will do if the situation gets worse.”
In a nutshell, he will do more of what the nation has seen this year.
If exports markets remain unfavorable, driving the nation’s trade balance deeper into the red, government will continue to tightly control cash flow in the banking system to avoid inflation and deflation.
It will borrow on the domestic market to cover the deficit. It will keep the economy tugging along with drip-feed investments into infrastructure projects under the guise of the Euro 2012 football championship, which Ukraine will co-host with Poland next summer.
In other words, Azarov will act like a competent planner reminiscent of administrative command-and-control economies.
He, not the markets and talents, will decide whether the construction sector remains a priority for the economy and if grain exporters will be able to breathe easier. He says they will be free to trade because the state has built a 1.5 million ton grain reserve – enough to outlast any bad crop or market turbulence.
“He is a massive administrator, capable of implementing grand projects,” says Oleksandr Paskhaver, president of the Center for Economic Development think tank and former adviser to various presidents and prime ministers. “Yet he lacks the instinct typical for liberals that a country is a living organism.”
Paskhaver said that he would expect a successful government to free business activity and promote innovation by releasing the state’s grip, particularly in a weak economy like Ukraine’s.
Yet the Azarov government is taking a different path so far.
The World Bank’s Doing Business report suggests that it has become harder to run a business in Ukraine. The nation’s rank slipped from 149 to 152 this year because registering properties, getting credit, protecting investors and cross-border trade have become more complicated.
At the same time, the new tax code blessed by the government and approved by parliament, has not brought relief. But Azarov dismisses these and other international studies.
“These indexes are calculated over the period of 1.5 years. The ones we’re talking about are based on the result of 2009,” he says, clearly passing the blame to his imprisoned predecessor, Yulia Tymoshenko, who headed the government then. “And anyway, why do I need those indexes if I have objective indicators of work of the economy and its sectors.”
Azarov goes on to say that construction alone grew by 16 percent this year. The Statistics Committee data showed 11.7 percent growth on 2010 in the first 10 months of this year. Much of it is due to the government’s multi-billion-dollar investments for Euro 2012 preparations.
Construction of Euro 2012 projects are both an economic priority and a source of pride for the government. Azarov talked about them eagerly. He says the stadium in western Ukraine’s largest city Lviv was “two piles in the middle of a field” when he saw it first.
Since March 2010, when Azarov was appointed, the stadiums in Kyiv and Lviv have been finished. So have several new airports and a number of other projects. But the nation’s main concern is the high cost for taxpayers, primarily due to corruption.
All government procurements for the projects were freed from competitive tenders. The Audit Chamber of the Verkhovna Rada parliament discovered this year that an average tender-free purchase cost Hr 51 million in 2010 and first half of 2011, while procedures with tenders cost taxpayers Hr 1.5 million on average. Uncompetitive purchasing constituted 63 percent of all government expenses on goods and services.
Azarov says exemption of Euro 2012 projects from competitive tenders was needed to meet deadlines. “Yes, we have corruption,” he admits. “And we’re fighting it.”
But Paskhaver of the Center for Economic Development says only when the corruption issue is truly addressed properly will there be immediate relief for the national economy. “When thousands of people are arrested [on corruption charges], yet there is no relief, there is a suspicion that the true motives are different,” he says, pointing to a recent wave of arrests and investigations into opposition politicians and activists. Corruption, according to Paskhaver, is a lot more dangerous in an economy run by administrative methods because it tends to be centralized.
Another danger is secrecy – the type that surrounds the ongoing natural gas negotiations with Russia, Ukraine’s main source of fuel and geopolitical political friction.
The government is trying to halve the price for imported gas from the current $400 per 1,000 cubic meters, but remains tight-lipped about the details of negotiations and the potential concessions it would need to give to Russia in return.
Speculation runs high that as a result of the negotiations, financially troubled state energy behemoth Naftogaz will be partitioned, as its strategic and profitable natural gas transit arm will be handed over to a Russia-controlled consortium.
“We’re currently at the stage of negotiations when any information – and often its interpretation is not accurate – can affect the negotiations,” a tight-lipped Azarov explains.
The negotiations are handled by the president and the prime minister himself – another sign of administrative-style governance that the nation cannot escape under the current set of leaders.
But Azarov is trying hard to keep pace with the times. He says he uses Facebook regularly. He reads and leaves comments weekly and “orders” assistants to do it at other times.
“We are unfortunately estranged from people. Office jobs do not give us opportunities for broader communication,” he says, explaining why he made a requirement for government officials recently to start up blogs. Even in solving this problem, Azarov remains true to his administrative style.
“But if you compare a competent administrator and a non-competent libertarian – the latter might be more dangerous,” concludes Paskhaver.
You can read quote highlights from Mykola Azarov’s interview here.
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Kyiv Post editor Katya Gorchinskaya can be reached at [email protected].
