Economists optimistic about Ukraine's economy despite worldwide economic downturn (10/07/01)

Economists optimistic about Ukraine's economy despite worldwide economic downturn

by Roman Woronowycz
Kyiv Press Bureau

KYIV - Ukraine should be able to avoid the economic downturn that Europe, the United States and Japan are beginning to experience in the aftermath of the terrorist attack on the United States, according to both government leaders and economists.

Even as production falls and unemployment rises in the leading economies of the world, economists here said they remain bullish on the Ukrainian economy, which still is expected to meet optimistic government projections or even exceed them.

Ruslan Piontkivskyi, a senior economist at a non-governmental think-tank, the International Center for Policy Studies, and editor of its publication, Quarterly Predictions, said he expects Ukraine's economy to grow at an even stronger clip than the 7.3 percent increase in gross domestic product (GDP) predicted by the government, to at least 8 percent.

He said the economy would be minimally affected by the tragic events of the last weeks, which have shaken international business and the world economy.

"In the last four months all the Ukrainian economy needs to do is attain a 2 percent growth rate and we reach 8 percent for the year," explained Mr. Piontkivskyi. He said the economy could do even better than that if no major upheavals occur.

Ukraine is currently in the midst of a robust 10.8 percent economic expansion for the January-August time period, the most dynamic in the Commonwealth of Independent States and Europe. That expansion lately has been driven by a stronger than expected agricultural harvest - now pegged to reach a 15-year-high of 40 million tons - but also by a rapidly expanding industrial sector booming along at a nearly 20 percent annual rate of growth.

Even with the economy on fire, inflation has remained very low, at 3.3 percent for the year. Most recently prices have even fallen, with the country recording a 1.7 percent decrease in July, 0.2 percent deflation in August and no evidence of inflation expected to be reported in September.

Mr. Piontkivskyi said some slowdown would invariably occur, induced also by 19 anti-dumping cases in various countries along with export quotas with Russia that will limit trade at the end of the year, but he explained that he sees no way in which negative growth will soon return.

"We are not looking at going from good to bad, perhaps merely from excellent to very good," said Mr. Piontkivskyi.

While acknowledging that trade levels with the United States and Europe would likely fall in commodities like textiles, metals and grains, the economist said it would be replaced with increased turnover with Russia and Central Asia, which had been occurring even before the dramatic events of September 11 set the world economy plummeting. He warned, however, that increases in oil and gas prices could affect the balance of trade with these countries.

Turning to Ukraine's financial markets, Mr. Piontkivskyi said they had not and would not be affected by world events because they were underdeveloped and isolated from the larger international financial community.

Government leaders said they too are bullish on the Ukrainian economy, although also with some caution. Minister of the Economy Oleksander Shlepak said on September 25 that while he believes the country will continue to see strong economic growth, he expects to see inflation rise in the final quarter of the year. However, he said possible price increases would be due to the worldwide economic decline from around 4 percent last year to about 2.1 percent, as currently predicted for this year - and not on an overheated Ukrainian economy.

Mr. Shlepak noted that trade reduction with Russia is a potential problem for next year, when Moscow introduces lower tax rates that could make Ukrainian products less competitive.

In an earlier interview in Interfax-Ukraine, Mr. Shlepak had warned that in case of a serious and prolonged war between the West and terrorists located in Islamic countries, one that reached "an immense scale," all predictions were off as to where the Ukrainian economy might head.

Meanwhile Anatolii Halchynskyi, President Leonid Kuchma's chief economist, said the world economy might even bounce back if and when a military response occurs to the terrorist attacks on the United States. He said that "an unpredicted outcome - up to a sort of economic revival" could occur in the United States and the European Union as a result of increased spending and production associated with the war on terrorism.

Mr. Halchynskyi explained that the Ukrainian economy would remain healthy for the short term, but added that "everything depends on further developments" in the U.S. response to the terrorist acts.

The International Monetary Fund, which finally resumed its extended fund facility program with the country on September 20, when it agreed to extend a tranche of $377 million, also gave the Ukrainian economy a positive assessment.

Anne Krueger, first deputy managing director of the IMF, said Ukraine's "economic performance in 2001 has been impressive," according to Interfax-Ukraine. She explained that monetary and fiscal policy has been on target in the first half of 2001 and that the country's external financial position "has improved markedly."

But the IMF also warned that to sustain growth and to stimulate foreign investment the country needed to accelerate and deepen structural reforms, as well as to continue budget austerity in the form of a 2002 budget with a deficit of less than 1.7 percent of the GDP.

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