New regulations introduced earlier this month could help to liberalize the commercial environment in Ukraine, especially for small firms. However, the preservation of other restrictions on commercial activity and foreign trade suggest that significant progress in liberalization may not be forthcoming in 1998.
According to a presidential decree "On the Deregulation of Economic Activity," all legislation and executive regulations pertaining to small and medium-sized business authored after January 1 must be approved by the State Committee on Business Development, which is now subordinated directly to the presidential administration. The Committee is also charged with reviewing existing national, regional, and local laws and regulations, and is authorized to annul "excessive administrative intervention in entrepreneurial activity." (Kievskie vedomosti, December 29) The Committee’s rulings are to be enforced by the federal Ministry of Justice. Committee head Yury Yekhanurov emphasized the radical intent of these measures by claiming that the average Ukrainian bureaucrat "could not imagine such a thing in his wildest dreams." In addition, Yekhanurov promised that the registration period for new enterprises would be reduced from one or two months to no more than ten days.
Also as of January 1, Ukraine’s natural gas market underwent partial liberalization. Independent gas suppliers are now permitted to compete with the Ukrhazprom state gas monopoly for residential gas contracts. (Nezavisimost, December 24) The intent is both to lower gas prices and to improve service for residential users. The measure should also cut out the shenanigans previously present in relations between Ukrhazprom, independent suppliers, and the State Committee on the Oil and Gas Industry. Prior to 1998, gas contracts had been awarded on the basis of unclear and allegedly corrupt criteria.
Taken together, these steps represent an effort by Ukrainian reformers to respond to the charges of excessive bureaucracy and corruption that have dogged Ukraine’s transition. More than political etiquette is at stake, however: according to the State Committee on Business Development, Ukrainian enterprises spend 3 percent of GDP on complying with ever-changing regulations. Administrative barriers are widely seen as a key impediment to the development of the small-scale entrepreneurial firms that have powered economic recoveries in Ukraine’s Western neighbors. There are only about 100,000 small enterprises currently operating in Ukraine, while there are 2 million in Poland — a country with only 75 percent of Ukraine’s population. (Nezavisimost, December 24)
These liberalizing trends may be hopeful signs, but countervailing tendencies can be found as well. Ukraine’s infamous system of "minimum indicative prices" for key exports has carried over into 1998. So has the licensing of some imports (for chemical pesticides and herbicides, pharmaceuticals, cosmetics, personal hygiene products, audio and video records and tapes) and exports (for, among other things, precious metals and gems). (Russian agencies, January 13) Perhaps most importantly, Ukrhazprom continues to be the sole supplier of natural gas to industrial and commercial users, so that the enterprise sector is unlikely to enjoy the benefits of increased competition, better service, or lower prices for gas.
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