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28 October 1998
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President Leonid Kuchma Held Meeting With Leading Austrian Business Figures

President Leonid Kuchma met with the leading Austrian businessmen and bankers at the Federal Economics Chamber in Vienna, in the course of which he expressed hope that direct Austrian investments in Ukraine, currently assessed to be around $65 million, would increase steeply.

Most of the participants in the meeting represented some 500 Austrian companies that operate in Ukraine, about 150 Austrian-Ukrainian joint ventures and 100 Ukraine-based affiliates of Austrian businesses.

The participants expressed serious complaints about the anti-crisis measures which had been undertaken by the Government of Ukraine and had unexpected and disadvantageous effects.

In particular, the Austrian businessmen complained about the problems that they faced following the ban on advance payment for imports, which was imposed by the government in August 1998.

But, according to Vice Prime Minister Serhiy Tyhypko, who was among the meeting's attendants, such a decision was a "transient reflex action" resulting from the pressure on the Ukrainian national monetary unit.

Minister for Foreign Economic Relations and Trade Serhiy Osyka echoed Mr. Tyhypko's statement saying that NBU's decision was not aimed against any individual nation, but should rather be interpreted in a broader context of Ukraine's imperfect tax legislation and insufficient guaranties it offers to long-term strategic investors.

Speaking before the participants of the meeting, the Chairman of the Austrian Federal Chamber on Economics Leopold Matertaner emphasized on Austria's favorable vision of Ukraine as a major East European partner.

Mr. Kuchma encouraged the Austrian businessmen to be more active in the process of privatization of large Ukrainian enterprises, such as the giant Nikopol Plant of ferrous alloys in which the State owns 80 percent of the stocks.

Agreement Signed With World Bank To Modernize Kyiv's Heating System

An agreement with the World Bank to provide $200 million in loans to modernize Kyiv's heating system was signed by Ukraine's Ambassador to the United States Yuriy Shcherbak, Kyivenergo power company Director-General Ivan Plachkov and the director of the World Bank's Europe and Central Asia Department, Paul Siegelbaum.

The project involves complete overhaul of the Kyiv heating system. The total cost of the project is 308.9 million dollars. The European Bank for Reconstruction and Development has also provided a loan of 40 million dollars for the project.

Ukraine Expects To Attract 2.5 Billion Dollars In Foreign Loans Next Year

The Ukrainian government expects to attract 2.5 billion dollars in foreign loans next year, Deputy Finance Minister Serhii Makatsariya said at a press conference on October 15.

"About 2.5 billion dollars is expected to be attracted next year to finance the budget deficit and balance of payments, among other things," Makatsariya said.

The deputy finance minister said $1.5 billion out of this sum could be obtained from the International Monetary Fund and the World Bank, and the remainder from international capital markets.

According to Deputy Finance Minister, Ukraine's external debts totaled $10.85 billion as of October 15, and it can rise to approximately $11 million by the end of this year. Next year, Ukraine will have to pay 1.25 billion dollars on its external debts.

Current Production Decline At Least Twice That Of Great Depression, Says Leonid Kuchma

The current level of production decline in Ukraine is at least twice the level of production decline during the Great Depression of the 1930s, President Leonid Kuchma said on October 20 when opening an international roundtable conference in Kyiv.

Despite the fact that Ukraine achieved a trade surplus for the first time last year, the current financial crisis has prevented the country from stabilizing production and ending the fall in the standards of living, Mr. Kuchma said. According to him, the situation is further complicated by excessive domestic debts, a chronic inability to balance the state budget, and the high price of credit resources. He further said that the policy of maintaining the national currency's stability at all costs did not justify itself.

Mr. Kuchma disclosed that the volume of investments in the Ukrainian economy grew for the first time this year, in spite of the current financial crisis. According to him, direct foreign investment rose by almost 50% while investment in the machine building and the metal processing industry rose by a factor of 10. Domestic investments also rose 6%, Mr. Kuchma said.

President Kuchma: Ukraine Lacks Sufficient Investment For Serious Reform In Agricultural Sector

As in the Soviet era, about 50% of Ukraine's agricultural produce continue to perish, President Leonid Kuchma said on October 20 in the address to the participants of an international roundtable conference on economic issues. The conference opened in Kyiv on October 20.

According to President Leonid Kuchma, the agricultural sector is one of Ukraine's potentially strongest points. At the same time, the high cost of agricultural production can continue to make competitiveness of Ukraine’s products low until the sector is sufficiently industrialized. He also noted that there were insufficient investments to implement serious reforms in the sector.

Mr. Kuchma assured participants of the conference that both the executive and legislative branches of the government were doing everything possible to improve the situation in the sector. He pointed out that the first stage of land reform had almost been completed while the second stage was just taking shape. He further noted that about six million Ukrainian citizens now own the land. According to him, all restrictions on export of agricultural products will be lifted next year.

Cabinet Of Ministers To Reorganize Economic Management System

On October 20, Ukraine's Prime Minister Valeriy Pustovoytenko in his address to foreign and Ukrainian businessmen and potential investors, who participated in the international roundtable conference in Kyiv, stated that the Cabinet of Ministers intended to overhaul the nation's economic management system.

Mr. Pustovoytenko said the issue would be discussed at the meeting of the Cabinet of Ministers. According to him, the changes will be aimed at strengthening the government's corporate rights. He further said that the government intended to consider the possibility of transferring its stakes in several enterprises to the investors that already own large stakes in the enterprises and actually invest in the development of the enterprises.

Financial Situation In Ukraine Under Control, Says Prime Minister Pustovoytenko

The Ukrainian government has full control of the financial situation in the country, Prime Minister Valeriy Pustovoytenko told an international roundtable conference on October 20.

Mr. Pustovoytenko told the foreign and domestic businessmen attending the roundtable conference that the encouraging signs of economic growth that emerged in Ukraine this year were marred by the world financial crisis. According to him, a real threat of an inflationary wave emerged in August-September under the influence of internal and external factors. It posed a threat to the stability of the national currency, the banking system, and financial stability. Mr. Pustovoytenko said that the events in Russia also dealt a hard blow to the Ukrainian economy but added that the government foresaw this and took preventive measures. According to him, the preventive measures enabled the government to avoid the collapse of the national currency, panic on the consumer market, and social tension.

The inflation figure for the first nine months of the year is 6.3%, Mr. Pustovoytenko disclosed.

The Ukrainian Prime Minister assured foreign investors of the government’s commitment to continue conducting economic reforms and assist foreign investors. According to him, tens of special economic zones with favorable conditions for foreign investors have been already created.

President Kuchma Signs Decree Aimed At Reducing Barter

President Kuchma on October 21 signed the decree "On Conducting an Experiment Aimed at Reducing the Volume of Barter Operations in the Economy of Ukraine". The decree's provisions are aimed at discouraging barter operations.

Among other things, the decree provides for conducting an experiment from January 1 to July 1, 1999 among the machine-building, metallurgical, and chemical enterprises, a list of which must be approved by the Cabinet of Ministers. According to the decree, an enterprise will pay 1% less tax profit for every 1% reduction in the specified basic volume of barter operations.

The decree stipulates that money saved through the reduction of the tax on profit will be used to boost working capital until a fixed level is attained.

Enterprises exceeding the basic volume of barter operations will pay fines equal to 20% of the value of the goods sold in excess of the basic volume.

According to the decree, "the fixed basic volume of sales under the barter deals is considered the volume of goods that an enterprise sold through barter operations, expressed as a percentage of the total volume of goods sold by that enterprise in January-September 1998 or in the entire 1997 and January-September 1998 in the case of enterprises with long production cycles."

For enterprises whose basic volume of barter operations was lower than the industrial average in January-September 1998, fines are to be paid on the volume of goods they sell in excess of the average.

The decree does not apply to barter operations in foreign trade.

The decree will go into force on November 21 (31 days after its signing) unless the Parliament adopts or rejects a relevant draft law.

According to the State Statistics Committee, barter operations accounted for 41.6% of total sales in all sectors in January-August (41.9% in January-July and 34% in January), including 47.3% in the chemical and petrochemical industry, 45.7% in the machine building industry, 40.1% in the ferrous metallurgy, and 21.2% in the nonferrous metallurgy.

No data are available for the January-September period.

According to specialists with the State Tax Administration, such a high level of "barterization" and high debts among enterprises has resulted in a shortage of working capital at enterprises and about 70% shortfall in tax revenues.

Special Economic Zone To Be Created On Basis Of Mykolaiv Shipyards

Ukraine's President Kuchma on October 22 signed a decree on creation of a special economic zone on the basis of the Mykolaiv "Okean" and "61 Kommunar" shipyards.

The special economic zones are to be established "with the goal of creating conditions for attracting investments and maintaining, developing, and effectively using the industrial, scientific, technical, and export potentials of the shipbuilding industry," the decree said.

Shipbuilding has dropped significantly at Ukrainian shipyards in recent years. Overall, the Industrial Policy Ministry oversees nine shipyards.

Parliament Approves Bill On Writing Off And Restructuring Of Domestic Agricultural Producers' Debts

On Friday, October 23, the Ukrainian Parliament adopted a bill on writing off and/or restructuring debts of domestic agricultural producers, sugar-mills included, which were registered as of January 1,1998.

The bill is viewed as only one step in a series necessary to improve the overall situation in Ukraine's agro-industrial sector.

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