WASHINGTON NOTEBOOK: Positive prospects for Ukraine, 1997 (02/02/97)

WASHINGTON NOTEBOOK: Positive prospects for Ukraine, 1997

by Michael Sawkiw Jr.
Ukrainian National Information Service

Established nearly a year ago to promote U.S. business investment in Ukraine, the Ukraine-United States Business Council (UUSBC) gained momentum after the establishment of the Kuchma-Gore Commission in the fall of 1996. Recently, UUSBC's executive director, Kempton Jenkins discussed the organization's efforts and the investment climate in Ukraine.

According to Mr. Jenkins, "The Ukraine-United States Business Council is a collection of major U.S. corporations seriously committed to doing business in Ukraine ... (it) is a rational and efficient mechanism to bring together leading U.S. businessmen."

With 15 founding member-companies - all Fortune 500 firms - the main objectives of the UUSBC are to become a significant instrument for American business investment in Ukraine; to position UUSBC within the U.S. and Ukrainian governments as the voice of American business interests; and to increase the membership base from 15 to approximately 100 companies.

In order for Ukraine to compete effectively in the global economy, it needs to adopt internationally recognized business standards. For a new country, this is a large challenge. Members of the UUSBC want to the facilitate that process, as well as the development of business relationships between American corporations and newly privatized Ukrainian enterprises and companies.

Reflecting on positive developments during Ukraine's five years of independence, Mr. Jenkins pointed to the Kuchma administration's dramatic record of achievements on military, political and economic issues. As an example, he cited the resolution of the nuclear warhead issue.

Furthermore, the Kuchma administration's ability to gain control of the inflation rate and the introduction of a new currency created favorable macro-political-economic conditions and spurred a remunerative relationship with the World Bank and the International Monetary Fund (IMF). Mr. Jenkins emphasized Ukraine's potential to transform what was once the "breadbasket of Europe" into a genuine cornucopia of agricultural production, especially with the influx of Western technology.

Attention was also focused on problems that currently exist with the reform process. Mr. Jenkins emphasized that the problems facing Ukraine are not unique, though they reflect a need for fundamental change for the long term.

"There is no quick fix to dealing with monetary reform, investment ratings and infrastructure. These are programs that have to evolve within Ukraine," said Mr. Jenkins.

Essential to business are reforms within the system of rule of law, particularly commercial law. An example of what is needed is a bankruptcy court that would protect workers' pensions in the newly privatized competitive industries.

Banking reform will provide opportunities for international investment to operate in a normal and efficient manner, as in Poland, which had $12 billion of foreign investment in 1996.

Tax reform is important to create an atmosphere for fair and free business interaction that is not dominated by an underground economy. The existing tax system has created an atmosphere that is unfair and punitive, Mr. Jenkins noted.

Viktor Pynzenyk, vice prime minister of Ukraine, recently said there are major tax reform initiatives before the Parliament of Ukraine. The new tax system is modeled on Western European standards and is envisioned to be realized in 1997.

Mr. Jenkins spoke also of the importance of infrastructure for the development of Ukraine. Improved roads, railroads, hotels, restaurants and communications are necessary to attract investment. Many U.S. companies are willing to invest in this process of infrastructure development.

Mr. Jenkins noted the positive role played by various Ukrainian American organizations in developing relations between entities in Ukraine and in the U.S., as well as in providing basic information about Ukraine to Americans.

He noted that Ukraine should realize that, though an article on the front page of The New York Times is important, substantial emphasis must be made on placing information in trade association journals and specialized media publications. "These are the outlets that are truly important for the genuine purpose of Ukraine's interests," he said.

Commenting on recent anti-dumping concerns raised by certain U.S. corporations, Mr. Jenkins stated, "These [anti-dumping] laws are an evolution of a reaction by the steel and other industries and communities that feel it is not fair for American companies to compete with government-subsidized industries."

As a recent arrival in the global economy, it is difficult for Ukraine to claim that it should not be subject to anti-dumping laws because it makes products cheaper and of equal quality, when in fact the products are less expensive, not due to increased efficiency, but because the steel industry still is state subsidized. Ukraine acknowledges this issue and is working with the World Bank and the U.S. to resolve the problem.

According to Mr. Jenkins, "The important thing is to have a good dialogue ... and a recognition on the Ukrainian side that subsidized state industries cannot survive because they are costly to their own economy. And, countries like the U.S. are not going to tolerate having their businesses be put out of business by state-subsidized competition."

When asked about U.S. government assistance to Ukraine, Mr. Jenkins was optimistic that the aid provided by the U.S. will be marginalized by the growth of prosperity and economic productivity sooner rather than later. "It is important for the U.S. and Ukraine to work together within the Gore-Kuchma Commission ... recognizing that the objective is to reduce the need for aid" and eventually enable Ukraine to become self-sufficient.

Mr. Jenkins compared assistance to the former Soviet Union to the Marshall Plan instituted after World War II. The U.S. was well situated to provide billions of dollars of assistance to Europe in grants to jump-start their economies. Within 10 years, the countries of Europe were rapidly approaching self-sufficiency and following 15 years of economic growth, they were competing in global marketplaces. This should be the prospect for Ukraine.

In closing, Mr. Jenkins noted, "President Kuchma and his administration will make significant progress in all areas discussed ...These problems [that Ukraine faces] are solvable, the resources are there, the people are there, but what is needed is organizing and harnessing those resources to accomplish these goals. President Kuchma has certainly shown that he has both the ability to harness the resources and the wisdom to recognize those things that need to be done. So, I am optimistic, and I think 1997 is going to be a good year for Ukraine and U.S. businesses working in Ukraine."

Before joining the UUSBC, Mr. Jenkins served as a career diplomat at the U.S. Department of State and the United States Information Agency (USIA) in Central and East European affairs. Mr. Jenkins was president of the U.S.-Soviet Trade and Economic Council and then served as corporate vice president with ARMCO, a major U.S. steel producer.

For further information, please contact: Mr. Kempton Jenkins, Executive Director, UUSBC, 1615 L Street NW, Suite 900, Washington DC, 20036; tel: (202) 778-1065, fax: (202) 466-6002.

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