U.S. delegation in Kyiv focuses on certification for foreign aid (01/17/99)

U.S. delegation in Kyiv focuses on certification for foreign aid

by Roman Woronowycz
Kyiv Press Bureau

KYIV - A high-ranking U.S. delegation told Ukrainian authorities on January 12 that if Ukraine is to receive the full amount of U.S. foreign aid in 1999, the country will have to work intensely in the next month to show U.S. authorities it has taken substantial steps down the road of economic reform and moved to resolve disputes between Ukrainian and U.S. business interests.

The group, led by Ambassador-at-Large for the New Independent States Stephen Sestanovich, met in Kyiv with Ukrainian officials on January 11-12 to discuss just what Ukraine must do to obtain the $195 million in foreign aid that has been earmarked by the U.S. Congress, which is subject to certification by the secretary of state that Kyiv has met specific criteria as spelled out in the House of Representatives' appropriations bill.

In accordance with the bilateral economic assistance appropriations act, Secretary of State Madeleine K. Albright is required to certify before the House Appropriations Committee by February 18 that Ukraine "has undertaken significant economic reforms additional to those achieved in fiscal year 1998, and include reform and effective enforcement of commercial and tax codes; and continued progress on resolution of complaints by United States investors."

If Ukraine fails to receive certification, it could face losing half of the $195 million appropriation.

"It is very clear to us that a lot of work is being done on economic reform and the resolution of business disputes," said William Taylor, assistant coordinator of aid for Ukraine. "We will be looking very closely at how things turn out in the next couple of weeks. A lot still needs to be done," he added.

Mr. Taylor, along with his boss, Mr. Sestanovich, and representatives of the Treasury Department and the National Security Council, including President Bill Clinton's chief advisor on Russia and Ukraine, Carlos Pascual, held discussions with Prime Minister Valerii Pustovoitenko, Vice Prime Minister Serhii Tyhypko and a host of other economic and reform leaders during their two-day stay in Kyiv.

Citing Ukraine as the largest single recipient of foreign aid among the new independent states of the former Soviet Union, Mr. Taylor explained at a press conference at the close of the delegation's visit that, in setting down the criteria, the U.S. Congress only wants to be sure the money is properly used. "The provision of the Congress is a test to determine how effectively that money is spent," said Mr. Taylor.

Mr. Taylor underscored that well-laid-out plans and statements of intentions by Ukrainian authorities will no longer suffice - today the U.S. is looking for "actual accomplishments." However, he added that he was impressed with the work currently under way.

Another member of the U.S. delegation, Assistant Treasury Secretary Edwin Truman, explained that Ukraine has moved on reforms in a halting manner and has been too slow to follow through on many initiatives, including the reduction of its bloated government bureaucracies; establishment of a transparent, fair and effective privatization process; implementation of structural reforms of its economy; business de-regulation; establishment of a fair tax code; and reform of the energy and agricultural sectors.

However, Mr. Truman lauded Ukraine for pulling through the world financial crisis while suffering fewer economic bruises than other countries, including its northern neighbor, Russia. He praised Ukraine for stabilizing its currency and working out new debt repayment schedules with its domestic and foreign creditors.

Mr. Pascual, President Clinton's chief national security advisor on Ukraine and Russia, said Ukraine must come up with a clear strategy to convince Congress that the country is moving, not merely to stabilize the country, but towards economic growth. "In the end a climate must be created to move beyond stability to growth," explained Mr. Pascual. "That growth is the foundation for creating jobs and giving people stability in their lives."

He said that little changes are as important as major overhauls, and cited as an example the need to allow the ministries of finance and treasury to obtain control over budget accounts that in the past have been off the budget. "It is critical to developing trust among taxpayers that their taxes are being spent effectively," said Mr. Pascual.

He also suggested that the government should get out of the oil and energy business and allow "strategic investors" to take over in those and other major industries.

The group also discussed with Kyiv officials a list of claims by U.S. investors against Ukrainian businessmen. Many of the disputes are holdovers from last year's certification criteria, which required only that Ukraine show substantial progress in resolving the disputes.

Seven claims still have not been settled, including ownership of Gala Radio in Kyiv and the Roksolana Hotel in Ivano-Frankivsk. Also outstanding are several disputes over agricultural equipment, and the granting of a permit to build a hotel in Kyiv. Mr. Taylor explained that he believes all are resolvable. "In all the disputes, solutions are possible. The two sides must simply work to resolve them," said Mr. Taylor.

Mr. Truman of the Treasury Department and U.S. Ambassador to Ukraine Steven Pifer acknowledged that some of the U.S. criteria for disbursement of foreign aid mirror requirements put forth by the International Monetary Fund's Extended Fund Facility (EFF) agreement with Ukraine, in which the financial organization has agreed to provide more than $2 billion in credits to the cash-strapped country.

Mr. Truman said tax reform and the implementation of a realistic budget with accurate macroeconomic figures are key steps in meeting both IMF and U.S. Congress criteria.

An IMF mission arrived in Kyiv the day after the departure of the U.S. delegation to begin discussion and analysis of the 1999 Ukrainian budget and Kyiv's compliance with EFF requirements. The IMF delayed the last installment of its credit extension until it could review the 1999 budget, which Ukraine's Verkhovna Rada approved on December 31, 1998, after a considerable battle among left and center-right forces.

The U.S. delegation also expressed satisfaction with the pace of the Kharkiv Initiative, a promise by the U.S. to stimulate business activity in the Kharkiv Oblast given after the Ukrainian government agreed not to sell turbines manufactured by a Kharkiv factory to Russia, which is building a nuclear reactor for Iran in the city of Bushehr.

Mr. Taylor said a joint Ukrainian-U.S. business center had opened in Kharkiv late in 1998, which would help to match U.S. investors with Kharkiv firms. Ambassador Pifer added that Kharkiv-area businesses finally had formulated business plans and prospectuses "for Mr. Taylor's office and the U.S. Department of Commerce to convey to the thousands of U.S businesses that have expressed interest in doing business here."

"The U.S. can now act as a broker for bringing these people together," explained Ambassador Pifer.

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