Ambassador Pifer speaks on recent developments in Ukraine (07/19/98)

Ambassador Pifer speaks on recent developments in Ukraine

by Yaro Bihun
Special to The Ukrainian Weekly

WASHINGTON - Ukraine has to bite the bullet on economic reform or face the possibility of a financial crisis within the next year, losing up to $6 billion in potential low-interest international credits and defaulting on its ballooning domestic and foreign financial obligations.

U.S. Ambassador to Ukraine Stephen Pifer balanced these words of caution with an expectation that President Leonid Kuchma's recent decrees dealing with the economy is an indication that his government realizes this precarious situation and is finally willing to act on it.

Ambassador Pifer discussed recent developments in Ukraine at a Friday Evening Forum on June 26 sponsored by The Washington Group (TWG), an association of Ukrainian American professionals, and the International Research and Exchanges Board (IREX), a non-profit organization that fosters academic exchanges with the new independent countries in Eastern Europe.

Before an audience of TWG members and representatives of institutions involved in U.S.-Ukrainian relations, Ambassador Pifer focused on what he saw as the three major challenges facing Ukraine: the restructuring of its economy, its political system and foreign relations. He also answered questions on related issues, including the reportedly high refusal rate for Ukrainian visa applicants in Kyiv.

The U.S. ambassador said that Ukraine's greatest challenge today is its economy. If there were to be another Asian and Russian financial crisis, he said, Ukraine would find itself in a position of not being able to borrow any money internationally or sell hardly any of its treasury bills domestically. At the same time, it would have to keep redeeming its high-interest monthly treasury bills and service its foreign debt.

For Ukraine the best way out of this situation is through the Extended Fund Facility (EFF) credit program offered by the International Monetary Fund, which insists on reducing government expenditures and deficit spending and increasing revenues. This would lessen Ukraine's dependency on its costly domestic T-bills that pay 45 to 50 percent on an annual basis.

"You can't maintain that for long before you run into a situation where virtually all revenues are going to be consumed by treasury bill redemption and servicing the foreign debt," Mr. Pifer said. "So there is a very fragile situation now, and it needs to be addressed."

The investment climate

Another important problem facing Ukraine is its investment climate, he said. "And, unfortunately, it's a very poor image," he said, pointing to the latest Harvard Institute for International Development survey of 53 emerging world economies which lists Ukraine in last place.

"And it is scaring investors off," he added. Ukraine has about $2 billion of foreign investment - "a paltry sum," the ambassador pointed out, for an economy the size of Ukraine, when, by comparison, neighboring Poland expects to get $10 billion in foreign investment this year alone.

Ukraine must work to eliminate excessive regulation, rationalize its tax systems, find a way to enforce contracts in order to win over foreign as well as Ukrainian investors and businessmen, he added.

"It's very clear that President Kuchma wants foreign investment," setting a target of $40 billion over the next eight years, Ambassador Pifer said. But for an American businessman in Ukraine, he added, "what counts is what the customs official says, what DerzhStandard says, what the tax auditor says. And right now, at the middle and lower levels, those people are telling foreign business: 'You're not welcome in Ukraine.'"

The American ambassador said that on June 16 he was "fairly pessimistic" about which way Ukraine was headed because even though there were statements about the government's economic reform plans in line with what would be needed to obtain the needed EFF credits from the IMF, the U.S. Embassy "did not see any dedicated push to bring that plan to fruition."

Reaction to Kuchma decrees

The situation changed dramatically two days later, he added, when President Kuchma stated that he could not wait any longer for the Verkhovna Rada to pass his economic initiatives and began issuing presidential decrees, among them one that halved the 10 percent Chornobyl payroll tax.

"We hope that what we've seen over the last eight days is a real signal that the government is committed and is going to push forward on this."

This decision has had a favorable impact on the last IMF mission to Ukraine, he said. If the IMF approves the EFF credits, Ukraine would get more than $2 billion over the next three years "at very, very easy terms," and that, in turn, could get Ukraine another $4 billion in World Bank loans, he said.

"So there is a lot of money at stake here," noted the ambassador "and it comes at far cheaper rates than Ukraine now is having to pay either for domestic T-bills or for Eurobonds."

Progress in the economic area will depend in large measure on how the relationship between the executive and legislative branches of government develops, he said. Unfortunately, this already is complicated by posturings for next year's presidential elections, as is evident from the inability of the Verkhovna Rada to elect a chairman from among the potential presidential candidates vying to head the Rada.

Ambassador Pifer said that Ukraine has done a good job over the past year and a half in building its relationships with its neighbors, including Russia, and with the West, and especially over the last half year with the United States.

Secretary of State Madeleine K. Albright's visit to Kyiv in March resolved "the single biggest political dispute" in the bilateral relationship, over the issue of nuclear cooperation with what the United States sees as pariah states, including Iran, he said, and this enabled the signing of a bilateral Peaceful Nuclear Cooperation Agreement and increased cooperation in space, including an expanded role for Ukraine in the commercial satellite launch market, he said.

The issue of visas

Asked why the refusal rate for Ukrainians seeking visas to visit the United States is higher than for citizens of other countries in that region, Ambassador Pifer said he did not have statistics comparing his Embassy's refusal rate with other consular posts in the region. The only comparison he could point to was to the refusal rate for Ukrainian visa applicants at the U.S. Embassy in Moscow which was four to five times higher than to other applicants.

He added, however, that a few inspection teams had looked into this problem in Kyiv and that they and he have found the refusal rate "justified by the circumstances."

He pointed out that the consular officers have the difficult task of working within the guidelines of a law "that is essentially 'un-American,'" mandating the presumption - until proven otherwise - that each visa applicant intends to break the conditions of the visa he requests.

There is a "very high fraud rate" in visa applicants from Ukraine, he said, and the fraud is becoming "very sophisticated," which has forced the Embassy to apply more scrutiny and, unfortunately, "raise the bar" for all applicants, he explained.

Ambassador Pifer said that it's much easier for a Ukrainian to get a visa to Germany because Germany has a system of internal registration and control for foreigner visitors and workers. That kind of system does not exist in the United States, which puts more pressure on the visa officer "to make the right call."

With no control system in place there is now way of knowing how many visa holders overstay their visas or get a job in the United States, Mr. Pifer said. The only indication of fraudulent intent of visa holders can be deduced from the number of those who try to adjust their status while in the United States, "and there's a fairly large number of those," he added.

Ambassador Pifer was introduced to the audience at the Friday Evening Forum by newly elected TWG President Orest Deychakiwsky and IREX President Daniel C. Matuszewski.