Ukraine's new minister of the economy addresses American Chamber of Commerce (11/06/05)

Ukraine's new minister of the economy addresses American Chamber of Commerce

by Zenon Zawada
Kyiv Press Bureau

KYIV - High oil prices were responsible for Ukraine's high inflation and lethargic Gross Domestic Product (GDP) growth this year, Minister of the Economy Arsenii Yatseniuk told the American Chamber of Commerce in Ukraine on October 24.

Government interference in the economy and Ukraine's dependency on steel exports also slowed GDP growth, Mr. Yatseniuk said.

Ukraine's GDP between January and September increased 2.8 percent compared with the same period in 2004, according to the State Statistics Committee of Ukraine. GDP in September alone was 3 percent higher than the same month last year the committee reported.

Mr. Yatseniuk assured Western businesspeople that GDP growth will stabilize during the fourth quarter of 2005. However, inflation appears to be more of a challenge.

"It is exceptionally problematic to maintain inflation at its current level," said Mr. Yatseniuk, who delivered one of his first public speeches since President Viktor Yushchenko appointed him minister of the economy on September 27.

Theoretically, the $4.8 billion Kryvorizhstal sale could pose inflationary risks to the hryvnia since the transaction will occur in the national currency, he said. However, the National Bank of Ukraine is carefully making sure the income from the sale won't cause any more inflation, Mr. Yatseniuk added.

That includes an estimated $1.4 billion injection to the Ukrainian budget, according to Prime Minister Yurii Yekhanurov.

"Today we expect an undetermined level of inflation, but a level of inflation that is not a threat to the current economic situation," Mr. Yatseniuk said. Inflation has been increasing at between 1.6 and 1.8 percent during the last three months, Mr. Yatseniuk said, without clarifying whether this was compared to the prior three months or the same three months last year.

"It is doubtful that we'll be able to obtain the same dynamic for the last quarter of the fiscal year," Mr. Yatseniuk said.

The Ministry of the Economy could not clarify Mr. Yatseniuk's statement in time for deadline, however, The Ukrainian Weekly's Kyiv Press Bureau confirmed other inflation figures with the State Statistics Committee of Ukraine.

Inflation was 13.9 percent in September of this year compared to the September 2004 month. Between January and September, inflation was 7.1 percent compared to the same period a year ago.

As for positive trends in the Ukrainian economy, Mr. Yatseniuk said an increasing number of imports are coming out of the shadow economy.

In addition, fraudulent reports embellishing export figures have been declining, he said. Ukrainian businessmen have exaggerated exports as part of schemes to receive a value-added tax (VAT) back from the government.

Some confusion has emerged with the European Union, which reported that Ukraine's exports rose 5 percent, while the Ukrainian government reported a 5 percent decrease, he said.

Economic relations with countries of the Commonwealth of Independent States are developing positively, accounting for a third of Ukraine's foreign trade, he said.

Russia remains a strategic economic partner and provides a large, lucrative market for many of Ukraine's goods, he said, without offering specifics.

Ukraine had a record year in terms of foreign investment, Mr. Yatseniuk said, not only because of the Kryvorizhstal auction but also because of Raiffeisen Bank International's purchase of Aval Bank in August. The Austrian bank Raiffeisen will have a well thought-out, aggressive policy in the Ukraine banking sector, Mr. Yatseniuk said.

Aval was Ukraine's second largest bank, and Mr. Yatseniuk served as its deputy chairman in August 2001 for several weeks.

Several other foreign investment projects already begun will be recorded in the fiscal year's fourth quarter, he said.

Regretfully, Ukraine lacks the energy diversification needed to avoid rising costs, Mr. Yatseniuk said. However "it must be said that Ukraine is a rather wealthy nation in terms of natural resources," he added.

Ukraine produces 25 percent of the oil that it consumes, has an unusually large reserve of cheap electricity, and has its own natural gas and natural resources, he said.

When visiting London three weeks ago, President Viktor Yushchenko had several meetings on the subject of producing raw materials and natural gas on Ukraine's territory, he said.

When asked about the future of the special economic development zones eliminated in Ukraine earlier this year, Mr. Yatseniuk said they will not return. Instead, the government should find other methods to compensate for the losses of legitimate foreign investors, he said. The Yushchenko administration under former Prime Minister Yulia Tymoshenko had canceled Ukraine's free economic zones, believed to have cost the government valuable revenues. However, their cancelation upset many foreign investors.

"It was wrong to take the benefits away, but it would be wrong to give them back," Mr. Yatseniuk said.

The economy minister also announced that he has formed a commission that will work closely with Israeli information technology professionals to develop projects in Ukraine.

Mr. Yatseniuk, 31, was born in May 1974 in the Chernivtsi Oblast and earned a law degree in 1996.

He served as minister of the economy for the Autonomous Republic of Crimea between September 2001 and January 2003. At that point, he became first vice-chairman of the National Bank of Ukraine when he was only 28 years old.

He worked closely with the bank's Chairman Serhii Tyhypko, who simultaneously served as Viktor Yanukovych's campaign manager during last year's presidential elections.

When Mr. Tyhypko resigned as National Bank chairman on November 29, 2004, Mr. Yatseniuk became acting chairman and stayed in that position until February of this year.

He was appointed first vice-chairman of the Odesa Regional Administration and served in that capacity until September 27, when Mr. Yushchenko appointed him to succeed Serhii Teriokhin as Ukraine's economy minister.

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