EDITORIAL: Cleaning up the agricultural sector (04/13/03)

EDITORIAL

Cleaning up the agricultural sector

We will not know whether Leonid Kozachenko is actually guilty of the charges of extortion, bribery, tax evasion or grand theft that have been leveled by Ukraine's Procurator General's Office until a Ukrainian court rules. Even then it may not be all that clear what the former vice prime minister may or may not have done, given the lack of transparency in many of the proceedings of the country's judicial system.

At the moment, however, the case of Mr. Kozachenko, who was vice prime minister of agricultural policy in the government of ex-Prime Minister Anatolii Kinakh from June 2001 to November 2002, has produced one immediate positive tendency: it has begun to pry the lid off of a shadowy, non-transparent grain market to reveal the corrupt practices that still abound in Ukraine's agricultural sector - even after reforms had distanced the state from the sector somewhat. Now the threat is that the state may be unable to resist the temptation to stick its fingers back in.

Mr. Kozachenko is accused of selling grain for export to foreign dealers at prices below those established in official intra-government agreements, while presumably taking kickbacks for doing so. He is also being blamed for allowing the haphazard approach to grain harvest reporting by government officials in Ukraine's oblasts. Some reports have suggested that every oblast over-reported its 2002 harvest, with the southern regions of Dnipropetrovsk, Zaporizhia and the Crimean Autonomous Republic inflating their figures by several hundred percent.

An extensive investigation by the Procurator General's Office, which was ordered by President Leonid Kuchma following price increases for bread after unexpected reports in February of grain shortages, resulted in 90 separate criminal investigations.

Now the Ukrainian government is re-examining the situation in the agricultural sector after prematurely trumpeting the successes of what effectively had been only limited reforms. While the state certainly freed the sector to develop on its own, it failed to stimulate the creation of needed market instruments, including a commodities market. It also failed to ensure that greedy government officials kept their fingers out of the lucrative grain trading pie. Now the time may be may be ripe to complete the changes.

The country's Anti-Monopoly Committee has initiated a study of the grain, flour and bread markets, to include all 27 of Ukraine's regions. It will determine whether a few market traders had colluded to develop a monopoly on grain exports that led to the current situation. Preliminary findings of that investigation are expected by May 1.

President Kuchma has continued to remain interested in the situation as well, and that is good. However, his decision to assert more state control over the agricultural sector is a knee-jerk response that could merely hinder the development of honest and open markets. Mr. Kuchma is wrong in deciding that the state must get a firmer grip on the grain market by "forming regional reserves of grain to control prices and cover grain deficits in the regions" - a move Mr. Kuchma ordered via presidential decree on April 7.

While the government and the state need to continue to peer over the agricultural sector's still none-too-developed shoulders to maintain oversight of the grain market, it is better that they do so while keeping their hands off market mechanisms as much as possible.

If Mr. Kuchma has learned anything while heading the Ukrainian ship of state for almost a decade, it should be that, when the state stays out of the private sector, positive changes occur. To see continued improvement in the agricultural sector - surely one of the most important for Ukraine's future welfare - our advice to Mr. Kuchma is to keep the government's eyes on the situation, but its hands off.

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