Viktor PYNZENYK: People will soon be scared to speak about reforms


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Ukraine’s key industries are plummeting in terms of market prices, ditto the average living standard. Companies whose products are meant for the middle class register a decline in terms of payroll dynamics. Kyiv’s top-level bureaucratic offices are picketed on an almost daily basis, protesting cuts on preferences, demanding that the cabinet’s promises be honored, supporting Ukraine’s European choice. The World Bank has lowered Ukraine’s business performance rating by three points.

Under the circumstances, Ukraine’s political landscape can change beyond recognition, so that the current outwardly stable regime will prove shaky, says TBi Channel’s Chief Editor Vitalii Portnikov. He told that the street may well become a political battlefield, in the presence of a serious social crisis, with the man in the street sinking below the poverty line, lack of government guarantees in terms of pension and wages and salaries – in other words following in the footsteps of some Arab countries.

For the time being, this political scenario is far from being played out in Ukraine, precisely because this country still has well-being reserves, but these are being quickly exhausted. Experts say that IMF money – something Ukraine’s top-level bureaucrats hate to discuss in public — is a guarantee of this country’s financial security in the nearest future.

Viktor PYNZENYK, ex-Finance Minister of Ukraine, currently deputy chairman of UkrSibbank’s supervisory board, says Ukraine’s problems have nothing to do with loans; that they are to be found in the rampant populist practices of its politicians, their refusal to communicate on a personal basis with Ukrainian society. More on this, Ukraine’s 2012 budget, IMF commission’s findings in Ukraine, hryvnia’s exchange rate until the end of the year, Yulia Tymoshenko’s prison term, prospects for Ukraine’s trade integration in the following interview with Viktor PYNZENYK.

Everyone expected the 2012 Ukraine’s budget program to provide for reforms. Now we hear that this will be Ukraine’s best socially oriented budget over the years of national independence. Any comment?

“Who is expecting reforms?”

Ukrainian society.

“I don’t think so. I think that Ukrainians will be scared to say ‘reform’ before long.”

Would you say that the 2012 budget program will serve Ukraine’s benefit?

“Reforms aren’t made by the central budget. What kind of reforms could be involved in this budget program? Budget relationships? Even these relationships aren’t determined by this program. Reforms are required in other spheres. The budget program reflects the kind of relationships we have in the sphere of health care, education – I’m talking key spheres that are currently sustained by the central budget. Unless we can upgrade them, our budget will never change the situation.

“Socially oriented budget? I don’t think I can understand this word combination. Social payments? They have always constituted the lion’s share of budget appropriations. Social payments in terms of exact sums? These sums will be larger in 2012, due to inflation among other reasons, and I consider this as a degree of progress. In terms of 2012 central budget balance, there are many problems relating to budget expenditures. Some of these problems, in separate sectors, could be solved using less complicated methods, like making [Ukraine’s] health care system a uniform one. This wouldn’t even warrant any changes in our le-gislation.”

There is a IMF mission working in Ukraine. We’re all expecting the findings. Will there be further tranches?

“I can’t see any obstacles if and when the Ukrainian government honors its commitments.”

Our government appears to be going through the motions of doing this, considering our cabinet’s pro-mises not to increase per capita gas consumption prices, contrary to the IMF requirements accepted by Ukraine.

“An increasing amount of data is being kept secret from the general public in Ukraine. Previously, any such IMF memorandum would be carried by the Ukrainian media, with the NBU website highlighting the key issues. What we have now is an old, obsolete NBU website. Talking of the commitments assumed by this Ukrainian government, particularly this Ukraine-IMF deal, one side says they will deliver and the other side says they will pay. Are these commitments important for Ukraine or for the IMF? I believe that raising natural gas consumption costs in the public sector should have been long since resolved, regardless of IMF loans. Here the key principles are used the wrong way. Try to picture buying imported meat at 100 hryvnias per kilo, with the domestic supplies at 10 hryvnias. How would you describe this policy? I have mentioned meat as an example everyone will understand. The same is true of gas prices. We want to develop our gas fields. Great. Who will pay for this? Ukraine is paying Russia 500 dollars per cubic meter with 410 dollars discount. Ukraine’s output would cost 30-40 dollars. There is also the serious moral aspect of the central budget and its appropriations being used for the benefit of Ukraine’s well-to-do people rather than those below the poverty line.”

Getting back to the IMF tranche. Suppose Ukraine is denied it, what will happen to our economy?

“Ukraine has accumulated a large public debt; there are several reasons behind this situation, with budget deficit being the biggest problem. I might as well point to a degree of progress there, but there remains the problem of old debts that require refinancing. There are deadlines to be met. All this takes money. The latest figures read 460 billion hryvnias in terms of direct and guaranteed loans. There remain the problems of debts and payments balance deficit. Ukraine has debts that have to be repaid this year. They won’t be refinance because there are no resources, so this country is in for a hard time. The next year will bring other problems, I mean payments on IMF loans. This burden will be even heavier in 2014. These are challenges we will have to meet. The key component of the payments balance, trade balance, could be an answer, yet there is none because this balance is increasingly in the red. Another component, Ukraine’s public financial account, doesn’t offer an answer either because the investment climate is worsening. There are no miracles. A number of decisions are to be taken to resolve this situation, creating one’s own economy as a basis, on the one hand, and obtaining money in the meantime, on the other hand.

“I think Ukraine needs IMF mo-ney under the circumstances. Another thing is that these loans are markedly inexpensive compared to others. This money is the so-called last instance and Ukraine will be asked to repay it only when borrowing from other sources will become difficult. For Ukraine borrowing money is easier said than done.”

Suppose this instance says no?

“That would be The Day of reckoning. And refusal wouldn’t be the biggest problem.”

What about the hryvnia’s exchange rate? What do you expect by the end of the year?

“Nothing will happen until the end of the year.”

Even if the IMF says no?

“That’s right. The government may have to start consuming hard currency reserves.”

Does Ukraine have sufficient gold stock to maintain the exchange rate?

“For a period of time, not for a year, if they start asking for one’s autobiography when buying or selling hard currency and if business will have to submit a memorandum with a family tree for all the founders. This is the wrong way to go. After all, money isn’t the problem. Decisions are. Important decisions that must be made in terms of investment climate, energy consumption cuts, aren’t being made.

“Energy resources are drilling a large hole in the budget and payments balance. There is no special sense of economizing. Let me tell you why. If a bottle of mineral water costs one hryvnia, this won’t matter much, so I will drink half a bottle, but if it costs 10 hryvnias, I will think twice before buying a bottle. If we want energy efficiency, we can’t buy gas at 500 dollars and sell it at 40 dollars. We’ll pay 500 dollars anyway and playing virtual games with 40 dollars will be no good.”

“Most of the gas is consumed uneconomically and the population consumes almost 30 billion [cubic meters], not 17 as we’re told.”

Ukraine constantly looks for additional economic reserves, borrowing money abroad and on the domestic market. Perhaps looking for ways to return financial fugitives would be more effective?

“I wouldn’t want any illusions often fed Ukrainians about an alternative like Polubotko’s treasure. Yes, Ukrainian money on foreign bank accounts must be returned to Ukraine. There are simpler and effective solutions like closing all offshore accounts – in other words, putting an end to legitimized theft in the economic sense of the word. And I mean foreign and domestic offshore accounts. Yes, there is the possibility of simplified procedures, but they mustn’t be a way to evade taxes, and that’s precisely the case in Ukraine.”

Recently there was talk at the cabinet about uniting the State Customs Service and the State Tax Administration under the aegis of the Ministry of Finance. Do you think this will work? If so, who would be at the head of the new structure?

“Every Ukrainian is familiar with the red tape of being sent from one office to the next to get some paperwork done. Some may be under the impression that the office that sends you to another one belongs to the States and that other office to Russia. Otherwise how can you explain being unable to get the information you need in that other government structure, considering that it is part of the same political system?

“There are two state agencies, the customs and the tax administration. What is the difference between them, with each collecting taxes, one at the border checkpoints and the other inside the country. These taxes are related, so the big question is: why two tax authorities? Do you think they share information? Even the finance ministry often couldn’t get information from the State Tax Administration because this agency doesn’t report to anyone in Ukraine, existing separately from the government machine. I think uniting these two agencies is a very good idea. The SCA and the STA of Ukraine must be subordinated to the Ministry of Finance. Moreover, the internal oversight offices must be separated from both because a component of a system will never work against this system. An institution independent of these agencies must be created, something like the financial police force under the aegis of the finance ministry.”

Which of Ukraine’s integration directions do you personally support? Westward or eastward?

“There is the former Soviet market. Can we squeeze anything new out of it? No, we can’t because it has its rules. The CIS’s FTA, something they’re so proud of, is nothing new for Ukraine. We had it yesterday. Ukraine signed the first such agreement back in 1993. Call it water area, whatever, it’s about free trade, but there has never been free trade.

“The European Union imposes lots of limitations on Ukraine and accessing its market is easier said than done. But access it we must. Without these limitations, Ukraine will have an opportunity to sell more and this will mean more jobs. The EU market is huge. Second, the way Ukrainians behave shows which direction to take. Why do they prefer to buy goods made in the West (there are exceptions, of course)? Because they are better and sometimes less expensive. It stands to logic to move in the direction of better standards.

“I wish the Russian people the best of success, but there are many domestic problems. Ukraine would like to be among countries without such problems or where they have learned to solve them. So which way to go? People have become convinced that they ought to head in a direction where there is an effective system. This means moving westward, of course.”

Will Ukrainian businesses be able to compete with their Western counterparts?

“Does the consumer have to win the manufacturer or vice versa? The notion of manufacturer’s protection shouldn’t be interpreted as protection of the proprietor. If the owner of a car-manufacturing company can’t come up with a competitive model, he should sell his business to the one who can.

“I wouldn’t want the emphasis on the manufacturer, because the consumer’s interests must come first. We know quite a few sectors where nothing has changed over the past 20 years, where they have simply been smartly using offshore accounts to take money out of Ukraine instead of investing in modernization. Oil refining is the first example that comes to mind. I can’t think of another country with such low refining level.”

However, the issue of European integration is suspended, among other things because of ex-Prime Minister Yulia Tymoshenko’s criminal case. How do you feel about this case and its role for Ukraine?

“There is nothing personal about this issue. If another person were in her place, the outcome would probably be the same and she realizes this.

“I have never supported the gas accords, and nor do I support the court ruling because it has nothing to do with economic crimes; it is purely political. Therefore, it should be assessed politically.

“Making political decisions through criminal proceedings is extremely dangerous, because then no one will want to make any decisions because everyone will be afraid to do so. Too bad Tymoshenko’s sentence became expendable material in issues having far more importance for Ukrainians. I believe that most of us simply underestimate the events of the past two weeks. They are very unpleasant and may have far-reaching consequences. We must make it to Europe.”

You are often asked whether you intend to return to politics and you invariably give evasive answers, that there is still time to consider the possibility before the next parliamentary elections. If and when, what would be the reason behind this return? What would be your status? Any other tasks that could be solved only on top of the political Olympus?

“No personal tasks. I feel pretty comfortable in my current status. I lead a beautiful peaceful life. I can enjoy watching my child grow up, considering that I didn’t see my elder son do so. However, I’m always available when there is an opportunity to give something a positive impetus. I’m not interested in any figurehead position.”

Other articles:

  • Door to Europe still open for Kyiv
  • On the EU’s philosophy and positive atmosphere
  • This day in history


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