"Ukraine Report 2003," Number 29
Ukraine Market Reform Group
Kyiv, Ukraine and Washington, D.C.
THURSDAY, April 17, 2003

INDEX OF ARTICLES:

1. COMPLETE TEXT: UKRAINIAN PREMIER PRESENTS ACTION PROGRAMME IN PARLIAMENT Ukrainian Radio First Programme, Kiev, in Ukrainian. April 16, 2003 BBC Monitoring Service in English, UK; April 16, 2003

Ukrainian Prime Minister Viktor Yanukovych has pledged to take steps to ease tax pressure on Ukrainian companies, encourage investment, simplify regulation, ensure transparent privatization, work towards membership in the WTO and raise living standards. Delivering his cabinet's action programme in parliament, he gave a GDP growth forecast of 5-6 per cent in 2003 and 8 per cent in 2004.

The following is the text of Yanukovych's speech in parliament as broadcast by Ukrainian radio on April 16, 2003:

Dear Mr [speaker Volodymyr] Lytvyn, dear members of parliament, participants in the meeting and media representatives.

The Cabinet of Ministers' action programme was drawn up in accordance with the Ukrainian constitution and is based on the Ukrainian president's [Leonid Kuchma's] messages to the Supreme Council [parliament] outlining urgent and long-term objectives. The document was jointly prepared by government officials, members of parliament, representatives of the regions, members of the public and specialists. We have had an extensive public debate on the programme, including public hearings. The key elements of the programme have received the approbation of the National Academy of Sciences.

I would like to put a special emphasis on the fruitful cooperation we have had with the Supreme Council, for which the Cabinet of Ministers is sincerely grateful. We have been working for five months now in a new format of cooperation with parliament, and we have positive results in solving key problems of our country's development. I would like to speak in more detail about some of them.

CABINET'S SUCCESSES

First, one result of our cooperation is the achievement of budget targets in the first quarter of 2003. Total budget revenues have risen by nearly 20 per cent. Tax revenues have grown by 34 per cent. The revenues of the state budget's general fund are up by 24 per cent compared to the same period last year. We have also met our spending targets. We have abandoned the practice of selective distribution of budget funds. We have disbursed 100 per cent of the funds earmarked for budget-sector wages and military salaries, as well as pensions and Chernobyl benefits.

We have paid in full for utilities and energy. The target of budget subsidy transfers has been exceeded by 3.5 per cent. Furthermore, we have achieved all these targets while having to make large foreign debt payments of nearly 2.7bn hryvnyas [over 0.5bn dollars]. We have been working hard on clearing social arrears accumulated over the previous years. But we understand that this is not a problem of this year alone.

Second, [we have achieved] the adoption of legislation to combat money laundering and the lifting of the FATF [Financial Action Task Force on Money Laundering] sanctions. The government and the National Bank, in accordance with the approved schedule, are implementing a set of measures to implement this legislation in a timely fashion.

Third, we have been working together with parliament on improving our tax legislation. We have achieved concrete results. The law on corporate tax has already been adopted. We are on the final stretch of adopting a new law on income tax. Next is the law on VAT.

Working jointly with parliament members has already demonstrated the results of a professional and constructive discussion to solve key economic problems, form the investment resources and boost domestic demand.

This is but an incomplete list of our joint actions, and it testifies to the fact that the priority tasks of the government's programme are being fulfilled. The government is working as a team. Our cooperation with parliament and coordination of policies with the National Bank is reinforcing the positive social and economic trends, which can of course also o be credited to the work of the previous convocations of parliament and our predecessors in the Cabinet of Ministers.

Among these trends is the 7-per-cent GDP growth and an 11-per-cent increase in industrial output in the first quarter of 2003. Exports of goods in the first two months of this year are up by almost 24 per cent, and real average wages grew by over 18 per cent.

ECONOMIC CHALLENGES

Unfortunately we are still having to cope with the problems and economic imbalances inherited from previous years. These problems are a major hurdle in the way of fast economic growth based on the investment and innovation model of economic development and the increase in prosperity of Ukrainian families. We are talking primarily about the capital and resource-intensive nature of our industries, increased vulnerability to the fluctuations of the world markets, old and obsolete production facilities, high tax pressure, low wages and a meagre budget.

These problems and their negative consequences are very clear to all of you, esteemed members of parliament. We have had a lot of discussions on these issues in this chamber. During the formation of our electoral platforms or when being appointed to government posts we all have had as our primary goal the tackling of poverty and bridging the gap between the rich and poor, improving the living standards of our citizens and opportunity for free personal development based on steady economic growth.

SOURCES FOR GROWTH

Where can we get the resources for such growth? Our debates over the past few years have finally brought us to the conclusion that we should improve the tax system, relieve the tax burden on corporate and personal incomes and thereby create an adequate environment for transparent and open work in the official sector of the economy without concealing revenues and earnings.

The most important thing is to restore popular confidence in the authorities; to boost business initiative, specifically in small- and medium-sized businesses; to accumulate our own investment resources and ensure favourable conditions to attract foreign investment in technical retooling, scientific research and innovation, in creating cost-effective jobs; to improve the skills and wages for workers, who are our future middle class; to form effective demand and an advanced domestic market; to ensure that Ukrainian products are competitive and invigorate the activity of our producers on world markets.

Tax reform is nonetheless only one of the tasks that should be implemented so that the money running through our economy's circulatory system can provide for its free breathing and development. This is why the government programme outlines a number of urgent tasks and their implementing mechanisms to be introduced in sync with tax reform. These include a pension reform, efforts to alleviate the burden on the payroll fund, to identify and establish ownership rights for investors and creditors, to improve corporate management and develop the stock market, further develop the financial sector, joint investment institutions, insurance and pension funds and other non-banking institutions.

These objectives are very difficult. They can be met by working hard together with the Supreme Council. The government has drawn up and submitted to parliament a number of legislative initiatives to this effect, in particular, a draft law on joint stock companies. We are also taking every effort to ensure the appropriate operation of the state commission in charge of regulating the markets of financial services. It is our shared responsibility to achieve transparency in this segment of the financial sector, to let citizens recover confidence to save money through pension and investment deposits, to create conditions to make such deposits profitable.

The government is working out and will implement by the end of the year simplified procedures for opening and closing businesses based on the principle of one office and its registration. The regulatory functions of bodies in charge of checking businesses will be streamlined and strict personal responsibility will be imposed on officials for taking ineffective regulatory decisions.

Next, we have come to the point of privatizing the industries which are crucial for national security: the energy, transport, information and food industries. We should give up the fiscal principle of privatization. It is important to form an institution of efficient owners and highly professional managers, attract money into the economy rather than spend it on routine needs and, in the end, implement a privatization model based on investment and innovation, uphold the national interests in development, ensure pro-active and professional management of state property and companies of strategic importance, above all, in the fuel and energy industries and transport.

The draft law on privatization in 2003-08 has been submitted to the Supreme Council. We are ready for constructive cooperation and further joint efforts to work out individual approaches to facilities of strategic importance.

ECONOMIC PRIORITIES

Now about development priorities. Accepting the priority of Ukraine's economic modernization, we should rely on our own competitive advantages and hi-tech industries. They are, above all, the aerospace and engine-building industries, consumer goods, transit transport and pipelines, biotechnology, the defence industry, machine building, electrical engineering and information technology, and agriculture with its unique capability to produce uncontaminated foods.

These specific areas call for credit support from the banking system. The National Bank of Ukraine has launched efforts to achieve this. For its part, the government is implementing and drawing up a number of projects in fuel and energy, agriculture, transport, space exploration and computerization together with the International Bank for Reconstruction and Development and the European Bank for Reconstruction and Development.

International experience shows that in achieving the postindustrial stage of development, economically advanced societies were driven by factors of innovative development. These factors above all imply a large-scale application of intellectual resources, such as human knowledge, skills, intellectual property and advanced technologies. Therefore, while increasing spending on innovation and investment, the programme envisages the introduction of a mechanism of the state commissioning priority innovative projects.

The Cabinet of Ministers will support cutting-edge research in science and technology. It is preparing, together with the National Academy of Sciences, a list of the most promising ready-to-implement projects. Similar work will be promptly done regarding industry-oriented sciences. The government and the majority of pragmatic-minded scientists and economists are of the same position: the state can be strengthened only by a re-orientation towards a model of economic growth based on science and technology. The model's essence is to accelerate the movement in the innovative cycle of science, technology, production and consumption.

The government's key task is to make agriculture competitive. Efforts are under way to work out mechanisms to provide targeted support for farmers and enhance the effectiveness of their work.

The programme's section on the fuel and energy complex was drafted together with the Supreme Council's Committee for the Fuel and Energy Sector, Nuclear Policy and Nuclear Safety. The section envisages significant structural change in this strategically important sector, an increase in the effectiveness of state support for reform in the coal industry and strengthening the state's energy security.

I especially want to draw your attention to housing and utilities. It is astonishing how grave the problems in this area are. The government is convinced that by implementing measures aimed at structural change in this sector, which are listed the programme, and by increasing the population's solvency, we can ensure that central and local executive bodies will take a responsible approach to restoring order in this socially important area. Specifically, quality services will be provided to the population, waste of funds will be ruled out, monopolists will not be able to charge too much and those who can pay for utility services will not be able to avoid their bills.

Dear members of parliament! We are firmly convinced that even the best of programmes can remain only a declaration unless those who implement it are patriotic and responsible to the people. Government officials must win the right to look people honestly in the eye by acting as professionals.

Social priorities

Each of our steps will be aimed at improving the people's wellbeing and the range and quality of social services which the state has to provide according to the constitution. Above all, this means developing education, culture, science, healthcare, ensuring comprehensive humanitarian development and humanization of the economy, improving the pension system, social security, assisting families with many children, strengthening the Ukrainian family and promoting a healthy lifestyle, as well as ensuring law and order and the country's defence capability. With this purpose we have to live and work.

Therefore, the government's budget policy first of all proclaims an increase in spending on the social and humanitarian sectors. The crisis in industrial trade education and the lack of attention to engineers' and technicians' higher education has resulted in a lack of specialists and qualified basic workers. This problem has to be solved immediately.

We are obliged to revive our secondary schools and industrial trade education. Let us make teaching a more prestigious profession. Teachers are our other parents, who guide our children and grandchildren - Ukraine's support and hope - along the path of work. Fulfilling the strategic task of making our workers, engineers, technicians and specialists more competitive will top our agenda.

We have to create conditions for promoting a healthy lifestyle, starting from secondary school gymnasiums and playgrounds. Of course, the prestige of physical culture and sport [has to be increased].

As regards pensions, they will be raised as early as by the end of this year. It is extremely necessary for us to jointly complete the consideration of draft laws on compulsory state pension insurance and private pensions, and start implementing the laws stage by stage.

We realize that far-reaching healthcare reform can be started only when salaries grow significantly. At the same time, the quality of medical services has to be increased dramatically today. In particular, there is an urgent need to improve out-patient treatment and ensure privileges in obtaining medicines.

We need to develop and implement state social standards in healthcare and ensure a guaranteed level of medical treatment provided by the state free of charge. Above all, we will take care of those who need state support most of all - first and foremost, the elderly, disabled, veterans of war and labour, pensioners, children and mothers.

There will be an increase in the funding of and comprehensive support for culture and creative activities, the affirmation of Ukraine's positive cultural image in the world and the development of the Ukrainian language.

Increasing salaries will be an urgent task in all social and humanitarian fields. Based on the budget's capabilities, this year we will raise the minimum salary to 185 hryvnyas [under 35 dollars] and bring the correlation of wages into line with it. Trade unions have supported this proposal.

The government will use all means available to facilitate the development of civil society, ensure citizens' rights and freedoms, raise the quality of living conditions and improve the environment.

The government's attention will focus on ensuring law and order and developing professionally trained and patriotic armed forces of Ukraine.

ECONOMIC PLANS

We will make the administrative reform reach further, we will radically improve the activity of the executive and increase the efficiency of our decisions and responsibility for implementing them. With the purpose of producing positive results in this important field, the Cabinet of Ministers will restart developing the balances of the production and consumption of the most important types of products.

This will be ensured by a calculation of the basic macroeconomic reproductive proportions, the level of GDP redistribution by the state and the correlation between end consumption and investment, as well as salaries in the structure of GDP. All calculations will precede the drafting of programs of economic and social development, as well as of the state budget.

Medium-term budget planning and developing strategic and annual action plans for the executive will become part of our activity. We will bring the state's targeted programmes in order and make sure that they are realistic.

As regards state finance, we will focus on increasing it and making it more effective, on the practical implementation of the programme-and-target approach to drafting and implementing the budget. All budget programs will be certified.

We will have to complete the transition to servicing budgets of all levels by the treasury.

In local finance, we will improve the current procedure of redistributing transfers on the basis of transparent and objective criteria taking into account specific features of different regions and regional programmes. Depressed areas will take priority. In addition, the resource base of local budgets will be increased.

We have to revive the practice of planning the prospective development of territories, cities, towns and villages in Ukraine.

We will introduce a procedure of local budget borrowing.

With the purpose of preventing corruption, the government will in practice ensure that purchasing by the state is transparent and involves competition. Tenders based on principles of interdepartmental coordination will be introduced for [purchasing] particularly expensive goods.

In debt support, we will continue working to optimize the structure of the state debt and to keep it within economically safe limits.

The implementation of the programme also envisages facilitating the broadening of authority of local executive bodies and bodies of local self-government and the strengthening of cooperation with regions in preparing nationwide and regional programme forecasts and financial documents. Today's parliamentary hearings will also facilitate this.

The development of cooperation in border regions, including cooperation with European regions.

Our activity will be transparent. The Cabinet of Ministers will make sure that information about budget spending is open. After the end of the budget year, starting with 2003, every distributor of funds will report to the public about how and on what he spent taxpayers' money.

Fulfilling the programme's tasks will create conditions for taking the economy out of the shadow and for its sustained growth.

We plan GDP to grow by 5-6 per cent by the end of 2003 and by about 8 per cent in 2004. This dynamics will stimulate the growth of real wages by an average of 12-15 per cent in 2003-2004. Taking into account the significant decrease in the tax on individuals' income - from 40 to 13 per cent - this will provide solid support for the growth of welfare of Ukrainian families and of every Ukrainian.

Clearly, the programme cannot fully reveal the algorithm of the government's actions in fulfilling the purposes and tasks it has proclaimed. We will ensure that the plan of necessary actions is implemented. It has already been drawn up on the basis of strategic planning.

The preparation of each decision which significantly affects our country's social and economic development, the interests of its citizens and certain, especially vulnerable, walks of life, as well as the protection of our strategic interests and national security, will be based on firm grounds.

We will work using the following principle. Define a problem, analyse its causes, develop ways of solving it, discuss all the pros and contras and only then take an appropriate decision, above all, taking into account available resources and expected social results. Only after this decision is approved, new laws will be drafted and current laws will be amended, if necessary. Such standards will make it possible to ensure that our activity is transparent in practice, because decisions will be understandable to people.

The government will work in a planned manner rather than in a rush. Cooperation with members of parliament and law-making will become more effective.

Dear members of parliament! Allow me to thank you once again on behalf of the government for supporting the action programme of the Cabinet of Ministers during its consideration in parliamentary committees, factions and groups.

Your remarks and constructive proposals on improving the measures envisaged by the programme show that our joint work has been and will be a guarantee of Ukraine's success in the revival of domestic production, the creation of highly productive and well-paid jobs and the active promotion of Ukrainian-made goods on foreign markets.

Consequently, [this work is a guarantee of] sustained and dynamic growth, the implementation of our European integration aspirations, achieving the welfare of the Ukrainian people and well-being of the Ukrainian family and every Ukrainian.

Thank you for your attention.