UKRAINIAN ECONOMIC REFORM PROGRAM.

Ukraine and the IMF have reached agreement on an economic reform program. The plan includes a number of deregulation measures and tax cuts aimed at stimulating economic activity. According to Ukraine’s Central Bank governor, Victor Yushchenko, the deregulatory package will affect some 97 laws and will provide for simplification of business registration and elimination of tax loopholes. Large spending cuts, however, will be delayed until next year, when the reduction of tax rates is expected to reduce budget revenues. Ukrainian deputy prime minister Viktor Pinzenik declared on November 19 that he is very pessimistic on the immediate prospects of increased budget revenues resulting from an expected expansion in business activity fueled by the tax cuts.

The Ukrainian-IMF plan relies on foreign financing to achieve its targets. Ukraine expects to raise $1 billion at a meeting with Western donors in Washington next month. The IMF will provide additional financing in the form of a 3-year extended fund facility (EEF) $3.1 billion loan early next year. In addition, Ukraine plans to launch a eurobond issue, although the amount involved is a rather modest $200 million. Yushchenko, meanwhile, was hopeful that the domestic debt market might prove a significant source of revenue. According to the 1997 draft budget, $2.8 billion. should be obtained from bond sales. (Financial Times, November 19, Interfax, November 20) Those sales began in June 1995 and their role in covering the budget gap has been steadily increasing since then. However, central bank credits remain important; in the 1997 draft budget, bond sales and central bank credits have equal weight as a source of deficit financing. (Interfax, November 21)

Pinzenik will present the 1997 draft budget and the tax reforms to Ukraine’s Supreme Soviet today. The proposed reforms are likely to face opposition in parliament but it is expected that the combination of a larger budget deficit and the provision of external resources will finally win approval for the liberalization measures. The speaker of the Supreme Soviet, Aleksandr Moroz, declared on Monday that the deficit budget for 1997 can be "corrected" in the course of the parliamentary debate. He considers the growth of the deficit as necessary to pay wage debts, compensation for the erosion of the value of savings by inflation, and other social expenditures. According to Moroz, the current budget policy of the government is in accordance with the prescriptions of the IMF, and it is precisely this policy that is responsible for the fall in output and the non-payment of wages. (Interfax, November 19)

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