The Ukrainian government receives the first tranche from the IMF, part of a fresh stand-by loan of $15.15 billion to overcome the country’s economic crisis and to ease structural reforms.
According to Vice Prime Minister Sergiy Tigipko, the first tranche of $1.89 billion will be spent on the repayment of the state budget deficit ($1 billion) with the remaining $890 million allotted to the restoration of foreign exchange reserves in the National Bank of Ukraine.
The second tranche is expected in December. Further allocations will depend upon the government’s successes in meeting IMF demands, which include: raising the retirement age, reforms in the energy sector and public utilities, reducing the budget deficit to 3.5 percent of gross domestic product by the end of 2011 and to 2.5 percent by 2012, the recapitalization of banks by the end of 2010, and the development of a reliable monetary policy for the National Bank of Ukraine.
The new IMF loan increases both the public and state-guaranteed debt of Ukraine, which was estimated to amount to $43 billion on June 30 this year.
Victor Tkachuk
People First comments: Borrowing is easy, paying it back is not. While few would doubt the necessity of the loans, questions need to be asked as to how this ever-increasing mountain of debt is going to be serviced. The national debt stands at $43 billion and, with interest, the sum is growing. That’s approximately $3,500 per household, which in international terms is tolerable, but in Ukraine, where the average household income is only $300 per month, this figure is worryingly high.
The gross domestic price per capita of Ukraine is one of the lowest in Eastern Europe, at a little over $2,450, only 13 percent of neighboring Slovakia.
Borrowing is easy, paying it back is not. While few would doubt the necessity of the loans, questions need to be asked as to how this ever-increasing mountain of debt is going to be serviced. The national debt stands at $43 billion and, with interest, the sum is growing.
Government funding only comes from one source: taxation. Taxes are taken from salaries and from businesses every month. If there is not enough money in the state budget to repay the loans, then the only options for the government are to either negotiate a deferment that will make all loans to Ukraine even more expensive or not pay state salaries or to increase taxes.
We believe that the alternative for the government is to create an environment where companies, particularly small- and medium-sized companies, can flourish.
In the European Union, approximately 67.4 percent of the labor force is employed in the small-medium enterprise sector and contributes 57.7 percent of gross domestic product while in Ukraine the figure is only 25 percent, contributing a paltry 7 percent of GDP.
Yet almost 85 percent of the Ukrainian tax inspectorate is dedicated to the small-medium enterprise sector. The balance is completely wrong. Parliament must look more to the national interest and not the vested interests of a powerful few.
News item #2: Ukrainian President Viktor Yanukovych and his political party continue to concentrate power in their hands, trying to broaden presidential powers and change the rules for Oct. 31 local elections.
The Party of Regions hastens the termination of 2004 political reform [which included constitutional changes that ended the Orange Revolution leading to Viktor Yushchenko’s presidential election victory on Dec. 26, 2004.] Party of Regions representatives insist it is necessary to cancel the political program adopted in 2004, resulting in a return to the presidential-parliamentary structure of government in Ukraine [and diluting presidential powers].
To this effect, a joint submission of 252 members of parliament was delivered to the Constitutional Court of Ukraine, supporting the motion for constitutional changes [to strengthen presidential powers.]
The presiding judge of the case, Serhiy Vdovychenko, was a judge in Donetsk Oblast. These factors suggest the possibility of a swayed decision at the Constitutional Court in Yanukovych’s favor.
[If the] 2004 political reforms [are] judged to be in conflict with the Constitution of Ukraine, [they] would be open for modification or interpretation by the Party of Regions. This would enable the ruling party, through a vote of 300 members of parliament or national referendum, to return broad powers to Yanukovych. Currently, the preferred option for the Party of Regions is to hold referenda on changes to the Constitution of Ukraine.People First comments: In order to make any changes to the Constitution of Ukraine or its procedures, the government needs a clear mandate from the people. Te issue should have been presented to the people at the last Verkhovna Rada or presidential election so that the people could decide whether they want such a change or not.
Judge Vdovychenko has no authority to decide on this issue without the formal approval of the people. If the Party of the Regions want to recommend such changes, let them put their arguments to the people in a free and fair democratic referendum where both camps have equal access to the media and the costs of the referendum are tightly controlled.
Politicians are the elected representatives of the people and have no authority to make such far-reaching decisions without a mandate from their electorate. In our opinion, without a clear mandate from the people, the Party of the Regions would be exceeding their authority. Thus, any change would be morally indefensible.
News item #3: The president has signed the law on local elections.
Yanukovych has signed the revised law on local elections, which demands a return to the majority-proportional system. Local elections will be held on Oct. 31 with a 50-day pre-election campaign. Under the law, the process of nominating candidates for the position of deputy in local councils will be implemented through local organizations of political parties, denying unaffiliated citizens the right to stand for local election.
In addition, the law stipulates that candidates can be put forward only by those parties registered not later than one year before the elections. This rule disallows the nomination of the new wave of charismatic politicians and their political forces, including; Strong Ukraine, led by Sergiy Tigipko; The Front of Changes, led by Arseniy Yatsenyuk; The Citizens Platform, led by Anatoliy Gritsenko; and others.
For these politicians, the only chance to gain power at local levels is by uniting with old-party players. By changing the election rules at the local level before the elections, the Party of Regions wants to rid itself of its political rivals of the new generation, who currently receive a more sympathetic response from Ukrainian voters.
People First comments: These changes to the system of local elections do nothing to build the credibility of current administration. These are the sort of changes we would expect to see in banana republics, as dictators cling to the last vestiges of power.
In a democracy, anybody should be allowed to stand for election. It is up to the people to decide whom they want as their representatives not up to those in power to select the candidates. Ukrainian democracy just took a major step backwards but those in power may well have underestimated the people of Ukraine who normally prefer to support the underdog.
Tigipko, Yatsenyuk and Gritsenko have just been given a massive boost. They and other forward thinkers will come to power, perhaps not this time, but when they do, the boot will be on the other foot.
News item #4: The Ukrainian government accelerates the reform of energy sector.
The Cabinet of Ministers of Ukraine, together with the management of state monopoly Naftogaz Ukraine, is holding an evaluation of the assets of the state-owned oil and gas company, after which the launch of a joint venture between Gazprom and Naftogaz is probable.
In a democracy, anybody should be allowed to stand for election. It is up to the people to decide whom they want as their representatives not up to those in power to select the candidates.
The Russian contribution to the venture, according to the chairman of Gazprom, Alexei Miller, is likely to be a deposit with reserves of 1 trillion cubic meters of gas. At the same time, Ukraine’s accession into the European energy community and the adaptation of its legislation to fit European Union norms could prevent the unification of the Russian and Ukrainian gas monopolies. During the July visit to Kyiv, the European commissioner for energy informed Prime Minister Mykola Azarov that Ukraine could, within six months, become a member of the European energy community.
The next step for Ukrainian authorities in reforming the energy sector is the suggestion from Moscow and Brussels to create a unified gas consortium, including Ukraine-Russia-EU. For this purpose the Ukrainian government is seeking guarantees from Russia of annual pumping through Ukraine of at least 150 billion cubic meters of gas per year, for the next 10 years.
Correspondingly, the European Union must provide a guarantee of matching these volumes of gas in purchasing. These requirements greatly reduce the likelihood of such a gas consortium coming into being, and hinders the dynamic development of the energy sphere of Ukraine.
People First comments: Gazprom is one of the largest energy companies in the world, while Naftogaz is often cited as being on the verge of bankruptcy. Are we really expected to believe that Goliath is inviting David to tea?
Naftogaz should not be bankrupt. It has been mismanaged and seen as a cash cow by successive governments for years. It has failed to invest in either the national pipeline network or Ukraine’s vast gas fields to a point where the country may have to surrender control of its most important assets simply to avoid a total collapse.
Ukraine should be a net exporter of natural gas, but virtually nothing has been done to develop the off-shore assets of the Black Sea, the coal bed methane assets of the Donbass region or the shale gas assets of western Ukraine. Western energy companies who have the technology to develop these assets twiddle their thumbs waiting for the bureaucracy to allow them to move forwards. It is in the national interest to develop these assets as soon as possible but the lack of transparency and accountability of government that has evolved since independence mean that it is virtually impossible for anybody to see what is really going on.
A merger between Naftogaz and Gazprom is unlikely to enable extensive development, as it would not be in Gazprom’s long-term interests.
Furthermore, the European Union, now wary of its dependence on Russia, is investing heavily in liquefied natural gas. Therefore Russian gas flows to the European Union are more likely to go down rather than up. In our opinion, Naftogaz is a prime example of why new standards of democratic accountability and transparency need to be introduced into every aspect of government in Ukraine.
Victor Tkachuk is chief executive officer of the People First Foundation, which seeks to strengthen Ukrainian democracy. The organization’s website is: www.peoplefirst.org.ua and the e-mail address is: [email protected]
