…WHILE DISMISSED YUSHCHENKO GOVERNMENT HELD THE FORT OF MACROECONOMIC STABILITY.

Despite its dismissal by the Verkhovna Rada on April 25, Acting Prime Minister Victor Yushchenko’s caretaker cabinet managed to mind the macroeconomic store in Kyiv. The cabinet wanted to ensure that the progress made in straightening out Ukraine’s economic problems during the last two years would not go to waste due to a lack of state oversight. According to reports (Reuters, May 24), the government is finishing work on an outline of the 2002 budget, which is expected to envision a small surplus. Because Ukraine does not have access to external sources of financing (from the IMF or commercial lenders) and does not possess major oil and gas reserves (like Russia), the government has to widen its tax base and control spending in order to avoid the specter of inflation and a possible default on Ukraine’s debt. But even if Ukraine manages to finance the US$1.1 billion in foreign debt payments that come due this year, Kyiv will still face the challenge of covering US$2.1 billion in foreign debt falling due in 2002. Unless funding from the IMF is restored, Ukraine will be left with its own foreign exchange reserves (which totaled US$1.66 billion at the end of April) and a mere US$300 million in support from the European Union and Western governments to meet this challenge.

Maintaining fiscal discipline need not be so difficult, however. Ukraine posted a consolidated budget surplus of some 2 percent of GDP in the first two months of 2001, following a surplus of 0.5 percent of GDP last year. Due to booming exports and industrial output and the improving financial situation of enterprises, central budget revenues reached their targeted amounts for that period. Revenues of the consolidated budget, which includes the central and regional budgets, totaled 7.5 billion hyryvnas in January-February 2001, and were also on target. If the new government holds the course on fiscal policy and if the Ukrainian economy continues to grow strongly this year, the challenge of keeping expenditures under control may not be too difficult (Reuters, Bloomberg May 1-25).

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