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25 December 1998
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President Kuchma Warns Against Reversing The Course Of Economic Reforms

I'm not afraid to quit my post, Ukrainian President Leonid Kuchma said in Mykolaiv on December 25, 1998 meeting there with senior regional and district administration officials. However, if the President's political opponent comes to power in Ukraine, this may lead to "bacchanalia" and the inevitable reversal of the nation's economic reformation course, Mr. Kuchma warned. As he further cautioned, the Communists, Socialists, and Hromadans in the parliament appear resolved to block the draft national budget for FY1999. They are obviously prompting the President to resort to extraordinary steps, Mr. Kuchma complained.

Prime Minister Pustovoitenko Addresses "Congress Of Ukrainian Business Circles"

Ukraine's Prime Minister Valeriy Pustovoitenko addressed the "Congress of Ukrainian Business Circles" on December 19. Mr. Pustovoitenko said the congress demonstrated that a spirit of unity was taking root in the country. According to him, neither political nor economic success can be achieved without unity. "I regard this meeting as a demonstration of business people's intention to not just criticize and await the outcome of the political battle but to establish an open and continuous dialogue with the government," Pustovoitenko said. Mr. Pustovoitenko said now is the time to take a step forward in the development of social partnership not just in words but in deeds. Mr. Pustovoitenko expressed confidence the congress would open a new page in the development of such a partnership, which would facilitate the creation of a reliable mechanism for mutual responsibility between government structures and the society, between enterprises and the government, and between employers and employees. The Ukrainian prime minister disclosed that the Cabinet of Ministers has begun taking practical steps to deregulate the economy and that administrative reform has begun. According to Mr. Pustovoitenko, one of the main priorities of the government's regional policy is the creation of free economic zones in the Donetsk and Luhansk regions as well as in the Slavutych, Trskavets, Transcarpathian, and Yavorovkyi districts. He expressed the hope that the creation of the free economic zones would attract investment and create jobs. Mr. Pustovoitenko named the aerospace, shipbuilding, agricultural machinery, light, food, fuel/energy, livestock, and poultry industries as other priority areas. A message from President Leonid Kuchma was read at the congress.

Prime Minister Pustovoitenko: Economy's Future Depends On Resolution Of Social Problems

Ukraine's Prime Minister Valeriy Pustovoitenko has said that the future of the Ukrainian economy, its development, and the state of affairs in the country depend on resolution of social problems. He made the statement in Kyiv on December 19 in an address to delegates to the Congress of Ukrainian Business Circles. Mr. Pustovoitenko said that the program for revitalizing the Ukrainian banking system in the 1998-2000 has practically been completed. According to him, the aim of the program is to improve the supervision and reliability of the banking system. Mr. Pustovoitenko further disclosed that the government has sent to parliament a series of draft laws aimed at boosting state budget revenues while reviewing tax privileges. According to him, a legislative basis has been drafted for indexing the population's wages in line with inflation as well as for reviewing the social norms involving qualification for government assistance. As Mr. Pustovoitenko told the congress, the country is presently in a difficult financial situation - government debt on arrears of social payments exceeds 2.7 billion hryvnia, pension arrears presently amount to 2.151 billion hryvnia, while arrears of contributions into the Pension Fund exceed 3.4 billion hryvnia. According to the prime minister, the government is forced to take measures to improve the social situation in the country. "The government can be criticized for the extraordinary measures taken against debtors but the truth is that the future of the economy, its development, and the general state of the nation depend on resolution of social problems," Mr. Pustovoitenko told delegates to the congress.

Prime Minister Pustovoitenko: Ukraine Must Cooperate With International Financial Organizations

Ukraine must cooperate with international financial organizations, Prime Minister Valeriy Pustovoitenko said on December 19 in a speech to the Congress of Ukrainian Business Circles. "I am laying emphasis on this. It is simply the litmus test that grants all foreign investors the right and opportunity to operate in Ukraine," Pustovoitenko said. "You must understand that no investors will come to Ukraine without cooperation with the International Monetary Fund." Pustovoitenko expressed dissatisfaction with the present state of Ukraine's cooperation with international financial organizations. "First of all ... we do meet those obligations that we undertook before the IMF. We reach agreement, read the agreement and when the time comes to implement it we turn out not be too decent. On the other hand, I would like international financial organizations to relate to the government, its proposals, and our domestic situation with understanding," Pustovoitenko said. The IMF suspended its Extended Fund Facility program in November, prompting a similar decision from the World Bank. Negotiations on resuming financing will begin in January. One of the main conditions for resuming IMF and World Bank financing is approval of a realistic 1999 state budget that would facilitate financial stability.

NBU Chairman: Hryvnia Will Be Allowed To Float Freely Only When Conditions Are Right

The Chairman of the National Bank of Ukraine, Viktor Yushchenko, has said that the existing currency exchange corridor will remain unchanged till the end of this year. Addressing journalists in Kyiv on December 15, Mr. Yushchenko said the decision to introduce a floating exchange rate would be made when the conditions are right. Finance Minister Ihor Mitiukov said at a press conference last week that introducing a floating currency exchange rate at this time may have dangerous consequences for Ukraine. "It is very dangerous and will require the government and the National Bank of Ukraine to coordinate their policies," Mr. Mitiukov said. The finance minister added that the sharp devaluation of the hryvnia that may result from the introduction of a floating exchange rate would have negative inflationary consequences. "The National Bank and the government should have the right to react accordingly to changes on the currency market," Mr. Mitiukov said. "Decisions should be made on the basis of economic expediency." Oleksandr Martynenko, President Leonid Kuchma's press secretary, said on December 9 that it was not yet clear whether President Kuchma would insist on introducing a floating exchange rate since the issue required careful consideration by the National Bank of Ukraine and the Cabinet of Ministers.

National Budget For FY 1999 To Be Adopted This Week

On December 25, 1998 Verkhovna Rada Chairman Oleksandr Tkachenko ventured a prediction that the FY 1999 national budget will be endorsed by the Ukrainian parliament next week. As the parliament speaker said, the heated debate on the national budget subject attests the parliament's earnest attitude with all MPs wishing Ukraine good, but not all of them knowing how to do that. According to Mr. Tkachenko, the most disputed points involve the budgetary deficit and revenues of local/regional budgets. With the Ukrainian national economy at its apparent nadir (1998's GDP is supposed to further drop 1.5 percent to 2 percent), the downfall has not stopped yet. As Mr. Tkachenko disclosed, shortly a joint session will be held by senior cabinet members and the parliament's relevant committeemen in charge of finances and economics, in a bid to formulate a mutually acceptable version of the draft national budget, though its specific parameters leave plenty of room for conjecture, for the time being.

Chernobyl NPP's Third Reactor To Be Shut Down For Repair

The Chornobyl nuclear power plantís last working reactor was expected to be shut down for two months on Tuesday, December 15, for planned repairs. According to representatives of the Chornobyl nuclear power plant, all the reactor's pipelines will be checked and new safety systems will be installed. The reactor was initially expected to be shut down for repairs on December 1. The shutdown date was postponed due to an energy crisis caused partly by severe frosts. One of the Chornobyl power plant's four nuclear reactors exploded in 1986 in the world's worst nuclear disaster. Two others have been shut down since then. Ukraine has promised the Group of Seven leading industrial nations to shut down Chernobyl by 2000 in exchange for aid to construct two new nuclear reactors to replace lost capacity.

VR Fails To Override President's Veto Involving Bill On Determining Poverty Line And Minimal Wage

On December 23, 1998 the Ukrainian Parliament, Verkhovna Rada, failed to override the President's veto involving a bill on setting the poverty line and minimal wage at respectively 118.6 UAH and 148 UAH per person per month. The bill provided for these figures becoming effective beginning October 1, 1998. As Ivan Sokhan, Ukraine's Minister for Labor and Social Policies, noted, the Ukrainian population really needs the money, but there are no funds available. Verkhovna Rada Chairman Oleksandr Tkachenko commented on the vote's outcome saying it was a clash between populism and realism. As a result, the poverty line and the minimal wage will remain, as they were, that is at 73.6 UAH and 55 UAH, respectively.

Cabinet Endorses Draft Law On Setting Poverty Line At 90.7 UAH

A Cabinet session in Kyiv endorsed the draft law on setting the poverty line at 90.7 UAH per person per month, beginning with January 1, 1999, the Cabinet press service reported. If the parliament, Verkhovna Rada, passes the bill, the Government plans to raise the poverty line to 94.5 UAH on April 1, 1999. The bill also provides for raising the monthly minimal wage from 55 UAH to 65 UAH on January 1, 1999 with subsequent raises meant for minimizing the difference between the poverty line and the minimal monthly wage. As it was noted during the session, the Government has no funds available to index the population's monetary incomes. The national budget for FY 1999 (its latest version) and the Pension Fund's means envisage roughly one billion hryvnias to this end versus the estimated need to the tune of 6.4 b. UAH, which is why the Government expects indexation of those citizenís incomes which do not exceed the set poverty line. According to Prime Minister Valeriy Pustovoitenko, this "unseemly step" is prompted by lacking legislative acts aimed at increasing budgetary revenues. Mr. Pustovoitenko bitterly criticized the Verkhovna Rada for its sluggishness in passing vital legislative acts, even half of which, if adopted, would be enough to solve the indexation problem and really raise both the minimal wage and the poverty line.

Parliament Sets Poverty Line And Minimal Wage For 1999

On December 25, 1998 the Ukrainian parliament, Verkhovna Rada, adopted a resolution setting the poverty line and minimal monthly wage at respectively 73.7 UAH and 90.7 UAH for 1999.

Government Revises Its 1998 GDP Forecast From 1.5% To 2% Decline

The government has revised its forecast for this year's GDP decline from 1.5% to 2%, Prime Minister Valeriy Pustovoitenko said on December 23 while addressing a meeting of the leaders of the Ukrainian Union of Industrialists and Entrepreneurs. "We expect about a 2% GDP decline," Pustovoitenko said. The previous forecast of 1.5% GDP decline was made at the beginning of November following the financial crisis in August-September. The government had earlier hoped that Ukraine would achieve its first ever GDP growth - at least 0.5% - this year. Real GDP actually grew by 0.2% in January-August this year compared with the corresponding period of last year but began to fall in September. According to State Statistics Committee data, real GDP fell by 1.2% in January-November this year compared with a fall of 3.2% in 1997. The government expects the GDP to also fall by 1% next year.

President Kuchma's Economic Decree Effective, Says Prime Minister

Ukraine's Prime Minister Valeriy Pustovoitenko told a December 24 Cabinet of Ministers meeting that the presidential decree that imposed sales taxes on jewelry and automobiles as well as on currency-exchange operations generates about 50 million hryvnia into the state budget per month. Mr. Pustovoitenko added that the decree would generate at least 600 million hryvnia per year for payment of pensions. Mr. Pustovoitenko told the Cabinet meeting the presidential decree aimed at boosting budget revenues, regulating budget expenditures, and reducing taxes remain very effective. He demanded an analysis of implementation of the presidential decrees aimed at resolving urgent socio-economic issues. The Ukrainian prime minister proposed asking President Kuchma to sign more economic decrees.

NBU Lowers Refinancing Rate From 82 To 60%

The National Bank of Ukraine lowered its refinancing rate from 82% to 60% per annum, effective December 21, 1998 NBU Deputy Governor Volodymyr Stelmakh said in a statement sent to banks on December 18. The statement said that the NBU recommends that banks revise their interest rates accordingly. The NBU considered lowering its refinancing rate in November but decided that there were no sufficient grounds for that. NBU Governor Viktor Yushchenko told a press conference on December 14 that the NBU was prepared to lower its refinancing rate if it was convinced that the adopted version of the law on next year's budget would facilitate preservation of financial stability. This is the sixth revision of the NBU's refinancing rate this year - it was raised from 35% per annum to 45% on February 6, lowered to 41% on March 18, raised to 45% on May 21, raised to 51% on May 29, and to 82% on July 7.


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