Publication: Monitor Volume: 4 Issue: 216

In his extraordinary address to parliament on November 19, President Kuchma proposed measures aimed at reversing the economic recession, stopping the steady fall of the GDP and accumulation of wage and tax arrears, and stimulating production. Kuchma’s prescriptions included: canceling tax breaks and simultaneously decreasing tax rates to both resolve the tax arrears crisis and increase budget revenues; privatizing the unwieldy Ukrtelecom state communications company and directing the obtained money to pay wage arrears to state employees; renouncing the “currency corridor” (fixed exchange rate) of the hryvnya in favor of a free market regulation of the currency rate.

Kuchma devoted much attention to monetary issues. He scolded National Bank of Ukraine [NBU] head Viktor Yushchenko for failing to devalue the hryvnya in order to stimulate exports. At the same time, Kuchma reiterated that he is categorically against “heedless money emission” and defined the hryvnya stability as the main prerequisite for a stable economic growth. This was Kuchma’s response to the November 18 proposal of the leftist parliamentary speaker, Oleksandr Tkachenko, to finance the budget deficit by a “limited and controlled emission.” However, Kuchma said that the hryvnya has been so far supported “artificially” and cited the spawning of the treasury bill pyramid and the accumulation of wage arrears–which currently total over 8.5 billion hryvnyas–among the main sources of the hryvnya’s relative stability over recent years (Ukrainian radio and television, November 19; Holos Ukrainy, November 20).

Kuchma timed his parliamentary address exactly to speed up the state 1999 budget adoption. The parliament on Wednesday returned the budget draft to the cabinet for revision. Left- and right-wing deputies alike blasted the draft, describing it as unrealistic and badly prepared. The radical leftist Progressive Socialist Party even went on a hunger strike in the session hall, demanding to increase the official minimum wage almost threefold and take it as the basis for budget calculations. Such an increase would be impossible without extensive money printing, effectively canceling cooperation with the IMF and the World Bank, which have repeatedly warned the Ukrainian leadership against populist budget decisions. The president paid no heed to the leftist demands and called on the parliament to adopt the budget with the record-low deficit of 0.6 percent of the GDP, proposed by the cabinet and agreed with the IMF. He even said that “the best for the economy” would be to introduce a zero deficit for next couple of years, but this would mean cuts in social expenditure, which is “unacceptable.”

Despite all this, later yesterday the parliament voted by 270 to 1 to increase the minimum wages from 55 to 148 hryvnyas (ICTV, November 19; Fakty I kommentarii, Stolichnaya gazeta, November 20). This makes the prospects of the budget timely adoption rather bleak. The state cannot afford financing the wages increase from its almost empty coffers. Kuchma will have to veto this decision of the lawmakers, triggering a new stage of confrontation between the executive and the legislative branches. –OV