Sestanovich weighs Ukraine's problems and successes at D.C. forum (11/01/98)

Sestanovich weighs Ukraine's problems and successes at D.C. forum

by Yaro Bihun
Special to The Ukrainian Weekly

WASHINGTON - In order to successfully ride out the current world economic crisis, Ukraine must effectively handle three major economic problem areas, according to a senior U.S. government official involved in assisting Ukraine.

Stephen A. Sestanovich, ambassador-at-large and special advisor to the secretary of state on the new independent states (NIS), identified these areas as Ukraine's currency, foreign debt and trade, and said that Ukraine can count on U.S. support if it continues its reform policies.

Speaking on October 19 at the Johns Hopkins University School for Advanced International Studies, Ambassador Sestanovich also discussed Ukraine's many successes, which, he said, far outweigh its problems. The forum was sponsored by The Washington Group, an association of Ukrainian American professionals, and SAIS.

As a result of recent increased government controls to preserve its foreign reserves, Mr. Sestanovich said, the hryvnia, in effect, has become a non-convertible currency. While this action is understandable, he said, it "is not a viable long-term solution for Ukraine. And the longer it continues, the longer Ukraine's national currency is taken out of international exchange markets, the more vulnerable it will be to a big drop when it becomes convertible again."

Ambassador Sestanovich stressed that Ukraine has to proceed "very carefully" and in close cooperation with the International Monetary Fund and World Bank to gradually expand the trading of the hryvnia, to allow it to find its new level, as well as to keep moving on its deregulation and reform programs.

"On that basis, the U.S. government will be able to support continued disbursements - which are essential for Ukraine at this period - from the IMF," he said.

Ukraine has managed its foreign reserves well, and there have been encouraging reform decrees by the president, he said. "The key is to follow through," he added, "and unfortunately the record cannot by itself provide confidence that those are going to be implemented."

He said Ukraine has the advantage of a good relationship with international financial institutions, and they have to be further cultivated and strengthened.

Ambassador Sestanovich said that how Ukraine handles the second problem area, its foreign debt, also will be crucial.

He pointed out that the global financial crisis has both aggravated Ukraine's problem and, at the same time, made it easier for Ukraine to handle it, because both the borrowers and lenders realize that, in the current situation, debts will have to be rescheduled.

Among the foreign bonds coming due for Ukraine in the near future that will need rescheduling are some $110 million to Chase Manhattan and $60 million to CS First Boston.

"How well Kyiv handles this will determine how soon it will be able to borrow again," Mr. Sestanovich said, adding "So far, the record in handling this extremely complex problem has been pretty good."

In this, as in some other respects, Ukraine is much better off than Russia, which has "virtually cut itself off" from international capital markets, he pointed out. "Ukraine hasn't, and it needs to make sure that it doesn't," he added.

The third important challenge, trade, also will determine Ukraine's future course in the world economy, Mr. Sestanovich said.

He noted that more than 40 percent of Ukraine's trade is with Russia, Europe is increasingly restricting Ukraine's exports, Ukraine's currency problems are limiting imports from the West, and it is facing new problems with its exports to the United States, where the U.S. steel industry has protested the dumping of foreign, including Ukrainian, steel on the U.S. market.

To deal with these problems, he said, Ukraine must diversify its markets and produce more competitive goods, which will require new policies concerning foreign investment, new business formation and the bankruptcy of inefficient enterprises.

The United States has worked with Ukraine in this area by exchanging trade missions and by providing assistance in areas where there have been reforms, he said.

"Unfortunately, improvements in the climate for private business - although they're taking place - are moving very slowly, in some cases not at all," he said. "The government is still wedded to protecting bankrupt industries and is doing too little to increase the productive potential of some potentially very powerful sectors, such as Ukrainian agriculture."

While focusing on Ukraine's problem areas, Ambassador Sestanovich gave more than equal time to discussing Ukraine's many accomplishments: in democratic development, nation-building, integration with its neighbors and international groupings, and building sound relationships with the United States and International financial institutions.

He pointed out that Ukraine is the only country of the former Soviet Union that changed presidents in a free and fair election; it recently had another parliamentary election; the Verkhovna Rada plays a role in influencing government policy, as is expected of democratic legislatures; and Ukraine has managed to develop as a nation while maintaining inter-ethnic peace.

It developed good relationships with neighboring countries, such as Poland and Russia - and it did not have to happen that way, he said - and with Western organizations, such as the European Union and NATO through its Partnership for Peace program, and forged regional cooperation groupings such as GUAM (Georgia, Ukraine, Azerbaijan and Moldova).

The U.S.-Ukrainian relationship developed into a "strategic partnership" through cooperation on many crucial issues, the most important of which, he said, was non- proliferation of arms.

And - what is especially beneficial now - Ukraine has developed and maintained a good relationship with the International Monetary Fund and the World Bank, receiving new credits from them even in the midst of the Russian financial crisis.

Just a few years ago, few people would have predicted these successes, which now provide a basis for confidence about Ukraine's future, he said. "Looked at one measure after another, Ukraine is a success story," he said, "but there's no dodging the big problems that it continues to face."

While these are problems that only Ukraine can solve, he added, the U.S. government and the Ukrainian American community, through organizations such as The Washington Group, have a role to play as well.

Because of their close relationships with both countries, he said, Ukrainian Americans can help the U.S. government understand what is really going on in Ukraine and what kinds of assistance programs can be most effective there, as well as help ensure that the Ukrainian government understands how it is being viewed, both positively and negatively, in the United States.

"Because American interests are at stake in Ukraine's future, we need to find ways to keep Ukrainian policy moving in the right direction," Ambassador Sestanovich stressed. And despite all of Ukraine's past successes, he added, "This is no small task. It requires commitment, clarity and resources."

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