Lazarenko wins new commitments in Washington (08/04/96)

Lazarenko wins new commitments in Washington

by Khristina Lew

WASHINGTON - Ukrainian Prime Minister Pavlo Lazarenko won a tacit commitment from the International Monetary Fund to explore the possibility of creating a $1.5 billion stabilization fund to back Ukraine's new currency, the hryvnia, during his first working visit to the United States on July 25.

IMF Executive Director Michel Camdessus said the lending institution would do "everything it can" to establish a stabilization fund for Ukraine, but cautioned that "we won't start it if it's not certain it will succeed." "I hate sinking boats," he said.

According to acting Deputy Prime Minister for Economic Reform Victor Pynzenyk, no country has ever received this type of credit from the IMF. Mr. Camdessus said "a mission with appropriate instructions" will visit Kyiv to discuss the proposed fund in October.

The IMF director more warmly applauded Ukraine's recent gains in controlling inflation, reducing the interest rate and strengthening its interim currency, the karbovanets, and said that when Ukraine's standby loan expires this year, the country should receive a $3 billion extended funding facility, a more liberal program, over a three-year period.

Ukraine is currently receiving up to $900 million of a standby loan in $100 million monthly installments. An IMF mission to continue negotiating the standby loan and research the possibility of a stabilization fund will travel to Kyiv in August, said National Bank of Ukraine Governor Viktor Yushchenko.

Fifteen days after being confirmed as Ukraine's prime minister, Mr. Lazarenko traveled to Washington to reassure international lending institutions and the American government that under his leadership Ukraine will stay the course of radical economic reform.

His July 25-26 working visit with Mr. Camdessus and World Bank President James Wolfensohn focused on nine projects currently on the table between Ukraine and the international financial organizations. World Bank projects include $316 million for energy sector reform and $300 million for agrarian reform, and programs to reform the public and financial sectors.

During a meeting with Rep. Benjamin Gilman and members of the House Committee on International Relations on July 25, Prime Minister Lazarenko reiterated the importance of continued Congressional support for Ukraine's economic and political reforms. In December 1995, Rep. Gilman, chairman of the powerful committee, had introduced a resolution in the House of Representatives in support of Ukraine.

The prime minister and his delegation also met with investors on July 25, first at a meeting of the U.S. Chamber of Commerce Ukraine Working Group, whose members include the oil and gas concern Pecten International, Redex Packaging Corp. (food processing) and the American International Group (insurance and banking), and later with the executive board of the Overseas Private Investment Corp., an independent U.S. agency that provides financing to American companies investing in emerging markets abroad.

OPIC President Ruth Harkin told the delegation that the agency's month-old Foundation for Investments in Central and East European Nations would prompt more American businesses to invest in Ukraine.

While the focus of his brief visit to Washington was primarily economic, on July 26 Mr. Lazarenko held private meetings with Treasury Secretary Robert Rubin and National Security Advisor Anthony Lake.

Closing the budget gap

Characterized as a decisive leader by members of his high-level economic delegation, which included newly appointed Finance Minister Valentyn Koronevsky, Mr. Lazarenko announced at the National Press Club on July 26 that Ukraine will temporarily halt funding of government programs from the state budget in order to pay wage arrears. In July, close to 8,000 coal miners went on strike in Ukraine to demand payment of back wages.

Despite reports that Ukraine would request financial assistance from international lending institutions and the American government to combat the wage crisis, Mr. Lazarenko denied that additional funding requests were made.

"We did not raise the issue of wages with the IMF, but instead are searching internal resources to settle the wage problem. IMF moneys are for reforms; wage arrears are a domestic issue," he said. Eighty percent of revenue suspended from government programs will go toward paying wages. The prime minister said the Ukrainian government is currently four months behind in wage payments and two months behind in pension disbursements. Ukraine's internal debt is 300 trillion kbv.

Mr. Lazarenko also said his government is planning a massive overhaul of Ukraine's tax system to bolster the state budget. A new revenue service and taxation office will be set up which will guarantee that "everyone, without exception, be it businesses or private individuals, pay taxes to the state budget," he said. "Unfortunately, prior to this, some people paid taxes, some didn't."

The prime minister conceded that countries with an economy in transition have shadow economies, but insisted that they could be made legitimate. He said the government has developed a set of legislative acts that will allow Ukrainian citizens who have taken assets out of the country to return them anonymously.

Mr. Lazarenko also emphasized that with the passage of the Ukrainian Constitution on June 28, all "barriers to forming a market economy were removed." On September 15, the government will submit eight documents to the Ukrainian Parliament that will stipulate how the right to private property will function in Ukraine.

The prime minister reported that privatization of medium- and large-scale enterprises is moving at a steady pace, and that the government is preparing to privatize an additional 208 large-scale industries. Since it launched its privatization program, Ukraine has privatized 40,000 entities and has concluded privatizing small-scale businesses. In 1995 alone, 30 percent of all Ukrainian enterprises were privatized.

On a political note, Mr. Lazarenko announced that in keeping with its political commitment to close the Chornobyl nuclear power plant by the year 2000, Ukraine will shut down reactor No. 1 in October, leaving only reactor No. 3 working at the Chornobyl plant.

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