INTERVIEW: Viktor Yuschenko, chairman of the National Bank of Ukraine

Viktor Yuschenko, 43, was reappointed chairman of the National Bank of Ukraine (NBU) in February, having served at this post since February 1993. Mr. Yuschenko has been instrumental in formulating his country's monetary policies and developing its banking and financial system.

A member of the Cabinet of Ministers, he also serves as Ukraine's representative to the International Monetary Fund, deputy representative to the European Bank for Reconstruction and Development and co-chairman of the Ukrainian-German Cooperative Council on Banking.

Prior to heading the NBU the region native was first deputy chairman of the Ukraina Bank, a joint stock institution created out of the Ukrainian SSR's Agro-Industrial Bank, which he joined in 1987 as department director.

Mr. Yuschenko arrived in Canada on March 13 for an unofficial visit, mainly to lend support to the Toronto-based charitable organization Help Us Help the Children, a division of the Children of Chornobyl Canadian Fund.

The National Bank of Ukraine chairman also met with leaders of Canada's banking industry in Toronto and Ottawa, but declined to speak on the record about these meetings, and his assistants did not wish to share his itinerary.

However, Mr. Yuschenko did agree to the following interview, conducted by Andrij Kudla Wynnyckyj on March 16 in Toronto.

Q: During his recent visit to Canada, Foreign Affairs Minister Hennadii Udovenko said, "Now that Ukraine has its own currency, it can pursue alliances with other European countries." Is that what it takes?

A: In the hryvnia we now have a healthy currency used for all financial transactions, and this obviously makes integration with all international institutions go more smoothly.

In fact, of all our trading partners in the near abroad, we are one of the first to achieve true stability in our currency. This also makes us very attractive as an economic zone.

In the past few months, we have also managed to make significant gains in our hard currency reserves. As a result, it has been easier to maintain general price controls, and the inflation rate has been kept to 1.2 percent a month. For a transitional economy, this is very important.

A stable currency, a low inflation rate - both are a foundation for the general stabilization of Ukraine's economy. Now, gradually, people's lives can return to a more even keel.

Q: What would you say to those who suggest that the stabilization of the hryvnia was financed, and the inflation rate curbed, by non-payment of salaries?

A: First of all, I can state outright that our reserves were not shored up by non-payment of salaries. All monies apportioned in the 1996 budget, and also those apportioned in early 1997, were duly handed over to the Ministry of Finance. This has nothing to do with the National Bank's control of the money supply.

This is entirely a matter of governmental financial policy and its taxation regime. If the government wants money in its treasuries in order to pay people what they're owed, it needs to have a reasonable taxation policy. If people aren't paying taxes, or they hide in the black market that obviously generates no tax revenue, you have to change the climate.

Reform, and a rational taxation policy, are not instruments for the confiscation of assets. You have to draw the producers of the nation's wealth to the table and deal with how the country's economy can best be primed to work.

Entrepreneurs should pay what they can. If you try to force more out of them, they will simply go directly underground into the black market, or operate in a gray area, and the country's wealth will never properly circulate.

The government needs to determine what level of taxation is socially sustainable, that is, acceptable. Strides have been made in this direction. In October 1996, President [Leonid] Kuchma issued a directive in which he set a 30 percent maximum on levies for social services such as unemployment insurance and the like.

You need to establish an atmosphere of trust, to minimize the perception that the government is grabbing for tax monies, and this in turn will provide a foundation for entrepreneurial honesty.

Q: During his recent visit here, Mr. Udovenko once again blamed Ukraine's poor economic performance on problems inherited from the Soviet system. When will the Ukrainian government stop leaning on that crutch?

A: In order to establish a foundation for a healthy economy, you need to have the appropriate laws. Now, if we were to scan the legislation that has been passed over the past five years, that's where we'd find the problems.

These laws had to be passed in consensus with the Verkhovna Rada. You have people there forcing through populist legislation, politicians giving people what they think they want and need.

Ukraine's laws on taxation are a prime example - they are the instruments that push many entrepreneurs into the shadow economy and make a full transition to a healthy economy very difficult.

Q: So Mr. Udovenko was speaking in code, suggesting that Soviet-style thinking is being kept alive by the Verkhovna Rada?

A: Let me answer the question this way: in order to reform an economy and a society, you need to attract groups of active, like-minded people who can have an impact on the country's well-being, then convince them to act together to gradually build a social consensus.

Then you can establish a strong majority opinion to move the country in a positive direction. You won't be able to simply "defeat" an opposite tendency - the results of such an approach never produce lasting change.

Q: Is it possible for a figure akin to Czech Prime Minister Vaclav Klaus to emerge in Ukraine?

A: When people look at the Czech miracle and the undeniably admirable Mr. Klaus, they often don't pay sufficient attention to the details.

Look at the man's experience. Ten years in banking, two years as minister of finance - throughout that time he did much, but he also faced an incredible number of frustrations.

When he was confronted by circumstances that clearly showed his reforms would go nowhere, he went into politics, fought it out in his Parliament, gained a majority and pushed them through.

Ukraine has had no shortage of individuals who have a similar mindset and no less ability than Mr. Klaus. Many times such individuals tried to bring about the necessary changes. But you can hardly compare our political climate to that of the Czech Republic, and there is only so much that any individual can do.

You need political support, dedicated backing from people in the executive branch, solid work from an honest bureaucracy. No transition in the post-Soviet period has been easy.

Take the case of [former Polish Finance Minister Leszek] Balcerowicz, he faced major problems. [Lithuanian President Algirdas] Brazauskas needed the full support of 60 percent of his Parliament to get anything done at all.

To be sure, Ukraine needs a Klaus to carry out reforms, but, in the end, it's not a matter of complex economics.

Four years ago, Klaus wrote an open letter of sorts to the leaders of governments who wished to reform their economies. In it, he listed the 10 commandments of economic reform - the usual liberalization of prices, privatization, an open currency corridor, control of budget deficits, what have you.

Then he topped it off by writing something like, "all the above are worthless if you don't follow the last commandment." And that was to maintain a solid team of like-minded officials and establish social consensus.

Q: Would you comment on the bankruptcy of the bank entrusted with German reparations to Ukrainian victims of the Nazi occupation?

A: In 1993 the Ukrainian government entered into an agreement on mutual understanding and resolution of conflicts with Germany, under which a special fund was established in order to offer restitution to former Ostarbeiter [Nazi term describing slave laborers brought from the East to work in German factories and farms].

Our government put out a call to a number of commercial banks to help administer the fund. One of these banks, Gradobank, lost an unrelated case before the Arbitration Court, was forced into bankruptcy, and in mid-1996 stopped payments to people owed money under the restitution fund.

In October 1996 we at the National Bank of Ukraine, even though it is not our liability, and not, strictly speaking, our jurisdiction, drew up a project to ensure these payments would resume.

Under this plan, the Ukraina Bank and others would take part in an arrangement seeing to it that all outstanding debts are paid and other payments are resumed.

I can tell you that a few weeks ago the Cabinet of Ministers ratified an agreement on this matter, and that it is now operational. According to our information, all claims should be settled within the next four months. Otherwise, the matter has been handed over to the Ministry of Finance.

Copyright © The Ukrainian Weekly, March 23, 1997, No. 12, Vol. LXV

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