ANOTHER TURNING POINT FOR THE UKRAINIAN ECONOMY.

Although data for the first half of 1997 show that Ukraine’s deep recession continues, the passage in late June of the 1997 budget and a portion of the tax legislation demanded by the IMF, combined with continued low inflation and exchange-rate stability, suggests that policy makers in Kyiv face more hopeful prospects than they did a month ago. Unlocking these prospects now hinges on the outlook for IMF assistance and structural reforms.

According to a preliminary report on the Ukrainian economy during the first half of 1997 — issued in mid-July by the Statistics Ministry and the Economy Ministry — GDP at mid-year was some 7.5 percent below its mid-1996 level. (InfoBank, July 21) Ukraine thus joins Moldova, Turkmenistan, and Tajikistan as the only CIS economies that remain mired in recession. Some of Ukraine’s largest problems were found in agriculture, where gross output declined by 15.5 percent (the drop in state farm production was more than double this rate), while food production was down 18.5 percent and foreign trade posted a 7 percent decline in dollar terms. Ukraine’s trade with the CIS and Baltic economies was also down, by some 20 percent, largely because of a precipitous decline (38 percent during the first five months of 1997) in exports to Russia. (Russian agencies, July 25) Falling exports are in turn a major cause of Ukraine’s growing balance-of-payments deficit that the IMF projects will reach $4.2 billion this year. (InfoBank, July 14)

On the positive side of the ledger, however, inflation in Ukraine seems to have been largely extinguished. Consumer prices are unlikely to rise by more than 1 percent in July and the inflation rate for the last 12 months has been 17.8 percent. The hryvnya, moreover, has held its value in nominal terms against the dollar and interest rates are at their lowest levels in years. (Vseukrainskiye vedomosti, July 19; Ukrainian agencies, July 26)

According to Ukrainian press reports and international assessments, transforming the country’s progress in financial stabilization into economic growth requires obtaining additional financing to cover Ukraine’s growing external deficit, as well as accelerating the pace of enterprise privatization and restructuring. The IMF now seems likely to provide Ukraine with $550 million in external financing under a standby agreement later this year, and the Ukrainian government plans to float a $1 billion Eurobond issue by year’s end. (Ukrainian agencies, July 22; UNIAN, July 23) Prospects for privatization and restructuring are more problematic, however, as they require a certain amount of cooperation from Ukraine’s frequently anti-reform parliament. But the removal of Ukraine’s ministers of economy and power engineering during the July 25 cabinet shuffle does give new prime minister Valery Pustovoytenko the opportunity to launch a fresh reform effort within the government — should he so desire.

Romania, Moldova Sign Military Cooperation Agreements.