On 22 September 2007, ZN published an evaluation of election promises made by Ukraine’s most influential political forces. The evaluation prepared by the Institute for Economic Studies and Political Consultations showed that election promises are, in fact, statements of politicians’ good intentions that offer no mechanisms for their implementation. During the election campaign, all political forces sharply criticized one another for real and imaginary economic lapses, praising their own economic achievements presumptuously. Few sensible ideas regarding actual challenges and prospects of Ukraine’s economic development were found in the piles of mutual recriminations.
The elections are over, and various political forces are busy distributing powers amongst them, although the time is ripe for discussing Ukraine’s post-election economy, especially in view of the Coalition Agreement between the Yuliya Tymoshenko Bloc and Our Ukraine-People’s Self-Defence that was presented on 17 October.
An expert would judge the “quality” of the new executive power by its ability to prioritize economic challenges, to identify their origin and nature, and to suggest effective ways of addressing them. This will determine the success or failure of the new government and political forces that formed it. This will, eventually, affect the dynamics of economic growth and national standards of living.
Today, the main focus should be on a limited number of specific tasks, rather than on strategic objectives set by certain political forces. After all, it is easy to compile a list of “global” challenges but specific immediate tasks and their performance will be a test for the new government’s professionalism since it will be impossible for top officials to ignore them.
The first test is the management intelligence test. The government will pass it only if it develops, together with the National Bank, a prudent anti-inflation policy. The current price rise testifies that inflation poses a grave economic and social problem. In order to address it effectively, the Cabinet should identify and analyze objective and subjective reasons for accelerated inflation in the country, which will demonstrate whether the government and the National Bank understand correctly the character and dynamics of processes under way in the national economy and their dependence on the global economic trends, whether they are able to grasp the true meaning of the political aspect of this problem.
It is critical that the Cabinet and National Bank scrutinize their previous mistakes and weaknesses, and learn their lessons in order to avoid them in future and improve coordination of anti-inflation efforts.
A successful passing of the test will also hinge on the Government and national Bank’s ability to design and implement a set of measures to slow down inflation. It is evident that traditional administrative measures like limiting trade markups, freezing prices for certain goods and produce, and market interventions do not work. An effective anti-inflation action plan should include sophisticated strategic measures, such as the introduction of inflation targeting, and the matching of social benefits with the actual capacity of the national economy.
Urgent measures should include a long overdue improvement of the methodology for calculating inflation rates, as the one used today fails to reflect the current reality of the Ukrainian economy.
What does the coalition propose? It defines the transition from “restrictive monetary methods to predominantly market-driven tools of managing aggregate demand and supply, as well as first-priority neutralization of non-monetary inflation factors” as its strategic objective. The definition is too vague and complicated to give direction for further actions.
By and large, the anti-inflation section of the Coalition Agreement provides for a lot of correct fundamental tasks, including the need to improve coordination and cooperation between the Cabinet and National Bank based on a special memorandum of understanding. However, it remains unclear what the parties meant while distributing the CEO positions in the National Bank, Ukreximbank and Oshchadbank (Addendum #1.5 to Coalition Agreement)? What will be the practical implications of the NBU governor’s nomination by a certain political force (in this case, by OUPS)? What about the NBU independence and autonomy if the NBU governor becomes a political figure, an appointee of one of the coalition political forces that form the government?
The same applies to the appointment of Ukreximbank and Oshchadbank CEOs. What is the agenda behind the political parties’ involvement in selecting top management for the state-owned banks, given that the state should have a clear vision of these banks’ role on the market and implement it accordingly?
The second test is political maturity test. The main task here will be to solve the public procurement problem. Our state public procurement system is absolutely inefficient and corrupted. And representatives of different political forces are interested in preserving it in its present condition. The system should be radically changed by adopting a qualitatively new law on public procurement which means infringing upon some particular people’s interests. That’s why I consider getting the public procurement sphere into order as a test of political maturity of the government and the parliament, whose decisions should be made according to society’s but not to some separate lobbyists’ interests.
One of the most complicated tests is the third test – a realism test. This test will be based on the attitude of the new government to the social sphere. At the present moment, the social support system in our country is practically unreformed.
However, considering today’s inflation, the government should make difficult decisions regarding actual limits to the raising of social payments, which will be quite painful for society and will hit the government’s popularity.
Social support matters are widely covered in Coalition Agreement. The most important points here are: social programs rationalization, implementation of direct social help, amending the laws according to the state’s financial liabilities analysis and implementation of medium-term budget planning. I absolutely agree with all these points. But will the realization of these tasks become a priority for the government? When and how will they solve these problems? It is much easier to promise to raise the payments than to revise the promises and reform the social support sphere since such reforms are always painful an unpopular.
In my opinion, the country with USD 7637 GDP per head (for comparison – in EU this index is USD 28213) and with critical level of demographic problems cannot afford to provide an expensive social support system. We should definitely conduct a hard and specific-purposed social support policy. In other words, will the new government be able to tear the vicious circle of populism notwithstanding the upcoming presidential elections?
The traditional challenge for all Ukrainian governments is the gas test in connection with relations with Russia. Concerning this matter, the Coalition Agreement is quite terse: “…mutually beneficial cooperation with Russia, countries of Central Asia, other suppliers of energy resources based on long term, transparent and gainful agreements excluding any shadow intermediate”. The idea is clear. Let’s wait for specific actions, agreements and results.
The next challenge for the government is the budgetary process, which can be an economic policy adequacy test. The budgetary process and the budget will show the government’s priorities in economical policy and its principal approaches to solving the main economical problem.
It is clear that this list is quite long. However, I would like to point out one more problem, the solving of which will show our government’s skills at solving complicated economical and socially-sensible questions. It is the issue of the land market.
The moratorium on farmland sales is expiring this year. What’s next? Will the new government prolong the moratorium and for what purpose? Will it try to cancel the moratorium and establish a full-fledged land market? How will the central body of power build its relations with local powers concerning land matters? As you see, there are a lot of questions and all of them are fundamental.
The coalition is intending to establish a land market, to draft and realize all necessary measures to provide the market’s normal functioning.
Finally, I hope that the Ukrainian political elite pass the most important test – a political responsibility test – successfully. This test means that the process of important economical decisions making should be depoliticized.
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