Pynzenyk: sound economic policies are best guarantor of hryvnia stability (10/06/96)

Pynzenyk: sound economic policies are best guarantor of hryvnia stability

by Yaro Bihun

WASHINGTON - Ukraine has not asked the International Monetary Fund (IMF) for a $1.5 billion stabilization fund for its new currency, the hryvnia, Vice Prime Minister Viktor Pynzenyk said on September 30.

Ukraine expects to receive $2.5 billion in IMF credits under the Extended Fund Facility program, he said during a news conference here, but added that his government's sound economic policies are the best guarantor of the hryvnia's stability.

Mr. Pynzenyk came to Washington at the head of a government delegation to the annual meeting of the IMF and the World Bank. The 20-member delegation also includes National Bank Chairman Victor Yushchenko, State Property Fund Chairman Yuriy Yekhanurov, Agency for Reconstruction and Development Director Roman Shpek, and Ukraine's representative to the European Community, Ihor Mytiukov.

Responding to a question at a National Press Club's "Morning Newsmaker" session, Mr. Pynzenyk said many reports about Ukraine's seeking an IMF stabilization fund for the hryvnia have been off the mark. "The Ukrainian government has not officially asked the IMF for a stabilization fund," he stressed.

"We have in the past and continue to discuss the possibility of obtaining such a fund, but we are firmly convinced that there is no better 'stabilization fund' than adherence to the sound economic policies of our government."

Mr. Pynzenyk pointed out that Ukraine has a very good relationship with the IMF. "There are very few outstanding issues remaining, which we expect to resolve during the next IMF mission to Kyiv. But our government and the IMF can both attest to the fact that the level of problems that arise today are much less significant than in the past."

Ukraine goes through a monthly review of its adherence to IMF guidelines, he said. "For seven months we met program guidelines, and every month we received the monthly part of the IMF credit tranche," he added.

Mr. Pynzenyk also pointed out that now there is an inflow of capital to Ukraine. The central bank has been able to increase its foreign currency reserves and is using it to effectively dampen speculation in the currency markets. While he could not give an accurate figure on the amount in these reserves, he said "it has no fewer than nine zeros."

Reporting on the state of Ukraine's economy, Mr. Pynzenyk outlined some positive indicators :

Inflation is under control, reaching 32 percent during the first eight months of 1996, and holding at about 1 percent per month over the past four months. The forecast for all of 1996 is 45-48 percent. Mr. Pynzenyk attributed most of that rise to large increases in costs for housing and communal services. In 1997, the inflation rate is expected to be no greater than 25 percent.
The karbovanets and hryvnia have not only remained stable since December, but have improved a little with respect to the dollar. The hryvnia currently stands at 1.76 to the dollar.
The rate of decline in the over-all national production has slowed, and has been reversed in some sectors of the economy. Official estimates are a 7-8 percent decline in 1996 and a 1.7 percent growth in 1997. These figures, however, do not include the growing and vibrant "informal" sector of the economy.
Internal and foreign trade has been liberalized: there are no export tariffs and low import tariffs (5 percent on average). The government has lifted non-tariff barriers on all trade except with those developed countries that put quotas on imports from Ukraine.
The tax system is being reformed: the corporate taxes now average 30 percent, and the value-added tax is 20 percent.
New reform proposals would lift all restrictions on the sale and buying of land.
The privatization of small enterprises is completed, with 32,000 businesses privatized, and the privatization of larger enterprises is going better than planned.
With the cooperation of the World Bank and the IMF, Ukraine is instituting major structural reforms in such areas as coal mining (where 50 mines soon will be closed), energy, agriculture, budget and finance.
Foreign investment in Ukraine will double this year to about $1 billion, he said.

Many problems remain, Mr. Pynzenyk said, and the government has started tackling them as well, including the establishment of a realistic budgeting process and cutting back on government programs and waste. Existing monopolies and numerous other obstacles hinder investment, he said, and the government is seeking to remove them. The government is also aware that foreign investors will follow when they see Ukrainians themselves investing in their economy, and that is beginning to happen, he said.

Asked about the "non-payment" crisis, Mr. Pynzenyk said the government is addressing the problem in three ways: by seeking to balance the national budget, instituting a workable tax system, and closing and restructuring unproductive enterprises.

As for the low harvest figures in Ukraine this year, he said that these official figures present a misleading picture because they do not include the vast harvests obtained from the small private plots that dot the landscape of Ukraine.

Asked about Russia's decision to impose a value-added tax on Ukrainian imports, Mr. Pynzenyk said that Ukraine is concerned that the VAT is being imposed on both imports from and exports to Ukraine, and that Moscow is doing this only against Ukraine.

As for the long-delayed singing of a friendship treaty with Russia, Mr. Pynzenyk said: "We'll sign it when we're ready." There are issues still being addressed in bilateral talks, he said. "The Ukrainian position is clear: we need such an agreement, and we'll do everything to get it signed."

On a lighter note, Mr. Pynzenyk said that the changeover from the karbovanets to the hryvnia has had a psychological effect on the Ukrainian people, and on him personally: "I have to confess that I am even considering quitting smoking. Earlier, I would spend 2 million karbovantsi without a second thought, but now I find it very difficult to pay 18 hryvni for a carton of cigarettes," he said.