INTERVIEW: U.S. ambassador speaks on developments regarding Ukraine
Ambassador Steven Pifer arrived in Kyiv on January 8, 1998, as the third United States ambassador to Ukraine. Prior to his appointment here, Mr. Pifer served as a special assistant to President Bill Clinton and senior director for Russian, Ukrainian and Eurasian affairs at the National Security Council.
Ambassador Pifer agreed to discuss with The Ukrainian Weekly a wide array of issues, including U.S.-Ukraine relations, the upcoming Ukrainian presidential elections, the Ukrainian American diaspora and the new visa application procedures at the U.S. Embassy in Kyiv.
The following edited interview was conducted by Roman Woronowycz at the U.S. Embassy in Kyiv on July 21. The conclusion will appear in next week's issue.
PART I
Q: What in your opinion, Mr. Ambassador, are the most critical problems that Ukraine must resolve today?
A: I think that right now the most critical issues are economic. They turn on sufficient economic reforms so that critical mass is achieved. You begin to have the creation of a business and investment climate where you have economic growth, job creation, the ability of companies that are in the open economy to generate greater tax revenues.
I think that's been an area where there has been a great amount of difficulty. There have been a number of reforms, but it has not yet reached the point where the economy has taken off. You see it in the numbers. For example, the United States is the largest foreign direct investor in Ukraine. With about $2.8 billion in foreign direct investment in Ukraine, there is $500 million of American investment here.
In Poland, by contrast, which has three-quarters of the population of Ukraine, there is $6 billion of American investment out of a total of $30 billion in Poland. Basically 10 times as much in comparison to Ukraine.
One of the tricks, I think, to turning the economy around here is to begin creating an investment climate that is attractive, so that foreign investors say that Ukraine is the place where I can go, where I know that there are transparent rules, where I can make a fair profit, and it's a good place to make my investment decisions.
Q: Everyone here in government speaks of the reforms that are occurring, but is there, in your opinion, constructive implementation of the reform programs in real terms?
A: You see some of it, but it's happening very, very slowly. So that there has been an increase in investment in Ukraine, but it hasn't been at the sort of pace that the Ukrainian government would like to see, or that we in the American Embassy would like to see, or that the Ukrainian economy would like to see.
At the American Embassy we don't make investment decisions. But what we hear from American investors and other investors is they say there is too much regulation here, the tax system is too complicated, there are problems with corruption, it's difficult to get a contract enforced. Sometimes even when you win a court decision you can't get it enforced.
The problem is that Ukraine is competing with a whole lot of other countries for foreign direct investment. Unfortunately, so far Ukraine is not doing well in that competition.
Q: How does the U.S. government look at all the promises made by the Kuchma administration of political and economic reform? Have there been moments of straightforward verbalization to Ukraine that there has been too much talk, now it's time for action?
A: What we are trying to do, and we do this in conjunction with the international financial organizations, the IMF and the World Bank, is to push and say these are the sorts of changes we think are necessary to create a business environment and an investment environment that are going to attract investment dollars. That, I really think, is probably one of the single biggest things that we do.
Again, it's getting the conditions right, it's committing to a privatization program that is open and transparent and gets foreign investors saying that, yes, this is a reasonable place to come and invest.
There has been a lot of contact with the Ukrainian government by the American side through the channels of the Binational Commission, the Gore-Kuchma committees, working with the World Bank and the IMF. These are the sorts of things that have to happen if you are going to create a situation that will bring investment in.
Q: Do you meet often with President Leonid Kuchma?
A: From time to time.
Q: Could you say quarterly?
A: I guess I have met with him once every three or four months, either on my own or sometimes [in a] a small group.
Q: Is Ukraine moving on administrative reform at the tempo the U.S. and the West would like to see?
A: I think the West is always going to say "do more and do it faster." It's a complex question and, invariably, when you are talking about administrative reform - just as economic reforms are difficult because they will evoke usually some short-term economic dislocation - administrative reform, when you start moving around different agencies, is going to have an impact on people. It's not an easy thing to do. But having said that, I think the general feeling remains that it would be useful to have the Ukrainian government structure streamlined, so that there are fewer independent agencies and ministries, so that there are streamlined mechanisms for decision-making.
For example, we hear that on certain decisions of government policy you may need to get the signature of 11 or 12 deputy [vice] ministers. Getting that is difficult, and it gives a lot of people the ability to raise questions or block things. It's an inefficient way of operating.
We've joined very much with the World Bank, which is focused on evaluating administrative reform. This will also produce decisions that will help create the investment and business climate that we want. But also it can reduce the possibility for government interference in the economy because, again, that is one of the problems, the government tends to get involved in the economy in ways that we, looking at a market economy, would think are averse to the long-term development of the economy.
Q: The outgoing chairman of the Agency for International Development has called the U.S. foreign policy budget completely inadequate, meanwhile the U.S. House of Representatives continues to push for reduced foreign policy appropriations. What does that portend for Ukraine? Can it still hope to see about $200 million annually earmarked for aid to the country in the future?
A: First of all, Ukraine does receive a significant chunk of assistance funding. The portion that you mention is from FREEDOM Support Act funds. In addition, there are funds that flow from other budgets, for example, the Defense Department, which provides funding for the Cooperative Threat Reduction Program. So there are a number of programs that are working in Ukraine.
We recognize that there are always going to be budget pressures to reduce dollars. What it does for us is that when we look at these assistance programs we have to continually ask ourselves: "Are we doing the assistance programs that make the most sense, and are we getting the best value per dollar?" It's difficult because, in an economy that's in transition like this one, a lot of things that we're doing is building capacity, is building potential for a market economy, but until you get more pieces into place you're really not going to see results. Results in some ways are several years down the road.
I think that is one of the problems when the budget for Ukraine comes into Congress, because there is a desire to see fast results. I think some of the frustration with Ukraine is that it has not moved more quickly on reform.
Q: The Ukrainian government has predicted economic growth in the year 2000. Other experts say the stagnation will continue. What are U.S. experts forecasting for Ukraine's economy in the near-term future?
A: I think that at this point it is still a bit early to tell. In 1998, prior to the onset of the Russian financial crisis in August, which then had a knock-off effect here in Ukraine, there actually were some signs that the economy may have been leveling, that production may have bottomed out and that we were beginning to see growth in certain sectors. It was knocked off course by the Russian financial crisis.
I think the government hopes to realize growth in the year 2000. My sense is that some of the financial experts, the economic experts and the international financial institutions are a little bit less optimistic and say that there still might be in the year 2000 a period of small decline before it begins to turn around. Again, one of the reasons we continue to push on economic reforms is that we think putting more of those reforms in place could in fact accelerate that bottoming out and then contribute to growth.
Q: Is there one thing in particular that Ukraine could do to spur that process?
A: A lot of it is going to turn on increasing investment. One thing that will be of real importance in the next year is strategic prioritization. Ukraine, actually, has had pretty good success in the privatization of small and medium enterprises. The bulk of those now are no longer in government hands. But there are still some large enterprises that have not been privatized. And there are some foreign investors who look at things, particularly in the energy sector and some of the energy generation and transmission facilities and Ukrtelecom, there is a lot of interest now in privatizing telecommunications. If they would put some of those up for an open and transparent privatization process, I think Ukraine could [obtain] quite a bit of capital.
Q: Is the Verkhovna Rada to blame, or the government?
A: I think there is reluctance in both parts. There are some in the Rada that, when you talk of power generation or telecom, say these are the crown jewels, and there is reluctance to give them up. An American investor or a British investor who buys an electric generating plant in Kyiv or Odesa, or wherever, is not going to pack the thing up and take it to the United States. He is going to have an interest in putting capital into that to make it an efficient and productive operation because that's how he is going to make his money.
There still is, and I think that this is a holdover from 70 years of communism, a reluctance to let go. I'd also say that there is a certain reluctance in many parts of the government - it's not just an issue in the Rada but also in the government - where there is a tendency to want to hold on and again maintain government control over the economy, whereas a free market answer would be that the government really has to get out of the way and let the market do what the market does best.
Q: Turning to another topic, have the complaints by the 12 or so of U.S. investors doing business in Ukraine been resolved? In the spring, Secretary of State Madeleine Albright, during her appearance before the Congress on certification for further U.S. funding for Ukraine, said only that progress was being made.
A: Of the ones that we were working on in the context of the certification ... from last February, we have made progress on a couple since February, others have not gone anywhere. We are still trying to work those.
Q: Has U.S. investment been increasing in Ukraine in the last year?
A: We have a generally climbing trend. There have been some very positive new investments. For example, Cargill has invested about $45 million into Donetsk and the Donetsk area to build a sunflower seed-processing facility. They started construction at the end of last year. It takes sunflower seed and processes it into oil. It will be up and running in early 2000. It's going to be state-of-the-art and will have a huge capacity.
So there are some companies that are making big investments here. It is not static.
Q: But then Monsanto is leaving, from what I understand.
A: We have heard that possibility. This has been a problem over the last couple of years, which is that the government provides inputs into the agricultural sector and then makes first claim on the grain that gets produced to pay off those inputs. As a result, for private input suppliers, including a number of American companies, there is very little grain which they can then get to pay off their inputs.
So what's happened at the end of each year is they have ended up with tens of millions of dollars in unpaid debts. The next year those input suppliers provide less credit. That then reduces agricultural yield, so you are on a cycle that unfortunately for the last three years is going downward.
When we talk to American input suppliers, they are not asking for special treatment. What they are saying right now is that by making first call on the grain, the government is paying itself every time for its inputs, but it is only taking a small portion that only covers a fraction of the debts that go to the private suppliers. The private suppliers are responding in a logical way, which is that they are reducing their exposure here by reducing the amount of inputs being given on credit.
Copyright © The Ukrainian Weekly, August 22, 1999, No. 34, Vol. LXVII
| Home Page |