UT1, Kiev, in Ukrainian, 29 Jan 04
BBC Monitoring Service, UK, in English, Jan 30, 2004
Ukrainian President Leonid Kuchma called on the cabinet to step up the fight
against graft, red tape and economic crime, speaking at a special government
meeting on corruption on 29 January. Delivering a speech, excerpts from
which were aired by Ukrainian television the same day, Kuchma urged an
all-out offensive on corruption, which he said pervaded all state bodies in
Ukraine, including law-enforcement, prosecutors and judges.
He called for steps to root out bribery, acknowledging that it is currently
impossible for businesses to survive without giving bribes. Kuchma decried
the continuing growth of the shadow economy, saying it was scaring off
foreign investors. He also addressed abuses in the energy industry,
privatization and taxation.
The following is an excerpt from a report carried by Ukrainian state-owned
television UT1 on 29 January; subheadings inserted editorially:
[Presenter] We are returning to the top story of the day. A nationwide
conference on fighting organized crime and corruption and protecting human
rights was held by Ukrainian President Leonid Kuchma today.
[Correspondent] Almost all Ukrainian leadership took part in the conference,
from heads of parliament and the cabinet to heads of all law-enforcement
bodies and other structures. From the very beginning, the president made it
clear that he was not in a mood to hold an abstract conversation about
corruption. Leonid Kuchma called for calling a spade a spade and drawing an
objective picture of the situation in the state with a detailed analysis.
The head of state began with achievements and successful macroeconomic
Economic achievements, shortcomings
[Kuchma] We assess last year as a year of continuing macroeconomic growth.
GDP rose by 8.5 per cent compared with 5.2 per cent in 2002. Meanwhile,
[First Deputy Prime Minister Mykola] Azarov is giving assurances that it
will be not 8.5 [per cent] but around 9 [per cent] or more. Industrial
output grew by 15.8 per cent compared with 7 per cent the year before. In
terms of industrial growth, Ukraine is among the leaders in the CIS, not to
mention the West. Real wages rose by 15.3 per cent. The first steps in
pension reform have been made. I want to stress that it is the first steps.
Positive trends have transpired for getting the income of the population out
of shadow. If in 2000 household spending exceeded income by 50 per cent , in
2002 - only by 10 per cent.
[Correspondent] At the same time, Kuchma recalled many wasted opportunities,
shortcomings and distressing paradoxes. In particular, this regards
Ukraine's state budget. On the whole, the 2003 state budget was fulfilled,
and its projected macroeconomic growth was exceeded by almost 100 per cent.
[Kuchma] Now one can ask the cabinet and its members a legitimate question:
why is there no adequate rise in revenues, where is the money? What has
happened to the bulk of revenues from economic growth? The answer is
obvious, at least to me. They have gone into the shadow. It was billions of
hryvnyas. This is what I would like Mr Azarov to talk about when he takes
There is another paradox. In 1996, when the hryvnya was introduced, mutual
debts of companies were below the level of GDP. Now they exceed GDP by 50
per cent. So it turns out that the debt is rising faster that the economy.
One can see with a naked eye that the assets of companies are spirited away
from the legal into the shadow sector. So if the [government's] economic
bloc worked properly in the cabinet, in the Cabinet of Ministers [changes
tack] this is the cause, we should start from here.
Three years ago I ordered the cabinet to come to grips with debtor and
creditor indebtedness. A working team was set up, which has not done the
job. Again, this is an issue for the economic bloc.
Law enforcers involved in crime
[Correspondent] The high dynamics of economic growth cannot be maintained
without large-scale measures to bring elementary order to the economy,
Kuchma believes. No significant progress has been made here.
[Kuchma] Let us be frank. Law-enforcement bodies are netting small fry or
quite often even provide cover for criminal transactions. According to the
latest data, bribery accounts for 7 per cent of crimes. Seven per cent, or
almost 3,000 cases a year. Meanwhile, a poll carried out among businessmen
showed that up to 90 per cent of them were forced to offer bribes in the
course of the year. Law-enforcement bodies are playing not the least role in
this. They squeeze criminal groups, taking over their lucrative positions in
order to milk small and medium-sized businesses. It was not accidental that
I asked the Security Service about Kharkiv today. But I received no reply.
It is a cover-up.
According to expert estimates, about 60 per cent of profits from smuggling
goes to maintain cover by law enforcers. This is another paradox which comes
from the shadow economy: the smugglers receive 40 per cent while those who
give them the green light and cover up for them receive 50 per cent more.
[Passage omitted: correspondent says small businesses report losses]
Enterprise stifled by red tape, corruption
[Kuchma] In this country, it is impossible to be successful in business
without violating numerous regulations. This is the main source feeding
corruption in this field.
According to entrepreneurs' estimates, corruption is the second worst, after
the tax burden, factor pressing down enterprise, slowing down its
For the fifth consecutive year, a draft law which should clearly say how
officials should treat entrepreneurs, is being prepared. Governments come
and go, but there is still no such regulation. Is the State Committee for
Enterprise unable to draft it? I want to ask you, did Mr Azarov prevent
[former head of the State Committee for Enterprise, Inna] Bohoslovska from
doing this? Did he prevent her from drafting a simplified system for
registering entrepreneurial activities, emulating the example of Kryvyy Rih
[in Dnipropetrovsk Region]? Was it so difficult to go there, check it out
and expand it to entire Ukraine?
[Correspondent] As to foreign investment, Western capital is scared away by
red tape in issuing licences and permissions, extortion camouflaged as the
so-called voluntary contributions and controversial court rulings - all this
is happening against the background of the executive's inaction.
[Kuchma] Back in 2001, the High Court of Arbitration of Ukraine obliged the
Mais enterprise in Cherkasy Region - a well-known enterprise, if I
understand correctly - to return 3.6m dollars to a US investor. This was the
High Court of Arbitration. But the regional executive bodies ignored this
verdict, and now there is nobody to take this debt from. All the assets of
Mais have been transferred to other structures, and the enterprise has been
driven to total bankruptcy.
This is what we are really good at. To fool, to swindle, to make a fool of
somebody. But it is Ukraine that is being fooled in the long run!
In Poltava, a US company invested 10m dollars in the reconstruction of a
confectionery. But the local authorities, illegally extorting a portion of
the investment for the city, erected all possible barriers to the project.
So it is not surprising that foreign investment goes mostly to foreign
countries, bypassing Ukraine.
[Correspondent] As to privatization problems, last year alone more than
3,500 criminal offences were uncovered. The state suffered losses amounting
to more than 200m hryvnyas.
[Kuchma] Artificial depreciation of property value has acquired a systematic
character, as well as groundless transfers of property to commercial
structures' statutory funds. This attitude by privatization authorities to
their duties costs Ukraine too much. The seizure of a Ukrainian aircraft in
Canada has been a nice illustration to this. It has turned out that there is
nobody to defend state interests in international courts. [Passage omitted:
Criticism of coal industry reorganization
[Kuchma] It has become clear to everybody by now that the system of
management in the coal industry is a complete failure. People have tried to
prove that the coal industry can make a profit. Scientists, mining directors
and regional managers have been learning how to work. I personally visited
Luhansk Region and I chaired a meeting in Pavlohrad [Dnipropetrovsk Region].
Everybody agreed then. I issued a decree on privatization in the industry
and so on.
Look, we have coal for 400 years ahead. But we are importing it from abroad.
I will return to this issue later on.
And what is the Fuel and Energy Ministry doing? Preventing this? Why?
Because if this system worked at a profit, where would they make money?
Instead, they have suggested setting up a ministry again, a kolkhoz
[collective farm, speaking sarcastically], as it were, disbanding holding
companies in the coal industry and setting up a kolkhoz instead. What do I
mean? All the holding companies that make profit today are being asked to
unite into a state company again, so that the poor should be paid at the
expense of the rich. Tell me please, those miners who work well, will they
agree to this? No, they don't want this. But there is pressure from the top.
This is not the first year that we are raising the issue of stopping the
washing-out of financial resources from state companies via intermediary
Intermediaries have driven to bankruptcy more than one enterprise. Again,
there's one rhetorical question here, what are ministries, [regional] state
administrations and law-enforcement agencies doing? Are they just
indifferent onlookers? I urge you not only to name them by names, but also
to bring them to book. Unfortunately, I have not heard this in any of your
Well, esteemed ministers, I am turning to you, are you afraid or just
unwilling to work for the state or is there something else to it? [very long
pause] Everybody has learnt to make fluent declarations. But when you face
real problems, you behave like ostriches.
Tax evasion rife
[Correspondent] The tax field is special in Ukraine. The economy has been
growing for five years, but the number of lossmaking companies has not
dropped. There are 40 per cent of them.
[Kuchma] Who will believe that the share of lossmaking enterprises involved
in trade is equal to the share of lossmaking companies in agriculture? And
agriculture suffered heavy losses due to the poor harvest. Or who can
explain why one-third of hotels, restaurants and financial structures
trading in property are in the red? Is it not clear that this is the total
hiding of income to evade taxation? And this is billions [very long pause]
I will show you some examples. There is a trading house in Ivano-Frankivsk
Region, called Naftotreyd. Is the governor here, [Mykhaylo] Vyshyvanyuk? He
is ill. Do you know that such a trading house works at your place? Sit down,
please. I will read a lecture to you. They recorded a revenue of 646m
hryvnyas last year, but they paid only 2,000 hryvnyas in profit tax. And
governors are crying that there is no money for problematic issues, for
social payments, for debt payments. Come down to earth, don't you see this?
A similar example. The Kherson Petroleum limited-liability company. If I
understand correctly, this is an oil company, isn't it? They cashed a
revenue of 836m and they paid 56,000 in profit tax. I will meet the governor
today and I will ask him. Look, I will say, do you work together with them?
In one team? And the law-enforcement agencies are there. The tax
authorities, first of all.
Economic crime in energy industry
[Correspondent] Now to energy. Economic crime is at the highest here, with
one crime out of every 10 committed. Last year alone, the state-controlled
regional power companies issued electricity worth 570m hryvnyas for free.
[Kuchma] Commercial loss of electricity in the grid was 8bn kWh more than
allowed. I am sure that this energy found its consumer. Only at whose
expense? At the state's expense, of course. I don't see any appropriate
reaction to such management on the part of the Fuel and Energy Ministry. The
Dniproenerho power generation company, the second-largest after Enerhoatom,
has been driven to bankruptcy because of the lack of responsibility on the
part of the ministry.
Not very long ago, the Enerhoatom national atomic company has also been
teetering on the verge of bankruptcy. But an honest and trustful person came
to the helm there. And instead of bankruptcy, now at the expense of this
company, which is making profit, we are completing the construction of two
[nuclear] power units, in Rivne and Khmelnytskyy. This year we shall
Land sale abuses, labour exploitation
[Correspondent] On to land matters. As demand for land is growing, the level
of crime here is rapidly increasing. In the regions, privatization of land
plots free of charge or sales of land at symbolic prices are a widespread
[Kuchma] The answer is obvious. Soon these land plots will be bought or sold
at market prices by businesses or individuals. The state is at a loss once
again. While profiteers are counting profits. In Crimea, beaches and
amusement parks are being built on the territory of wildlife preserves and
grape plantations. Big money is being made, but the budget gets nearly
nothing our of that. A commission of the National Security and Defence
Council headed by [Volodymyr] Radchenko is working there at the moment.
[Correspondent] As for the social aspect of crime, according to official
data reported by law-enforcement agencies last year, there were 1,200 crimes
concerning unpaid wages. The true numbers are totally different.
[Kuchma] Today more than 1.5m workers do not get paid on time. Each one of
such facts is a crime. This is especially intolerable at the time when the
economy has started growing. The authorities and law-enforcement agencies
have no right to turn a blind eye to this. Exploitation of workers for free
is against the law and cannot be tolerated. Let me recall that the
constitution says that the right to receive timely pay for one's work is
protected by the law. How are we helping the law work?
Need to cut red tape, improve discipline
[Correspondent] A powerful bureaucratic machine remains some sort of
incubator for corrupt officials. Paradoxically, instead of a decrease in the
number of state officials envisaged by administrative reform, their number
has grown by 21 per cent to almost 22,000.
[Kuchma] You know, during my time as president, I have tried to cut the size
of administrative bodies on several occasions. Since the beginning of
administrative reform in December 1999, the number of employees at the
Cabinet of Ministers secretariat has increased 18 times. In other central
executive bodies it has increased 95 times [as heard]. Despite my tough
demands concerning the unification of pay schemes, all the ministries and
state bodies use dozens of various schemes. This is one step away from grave
violation of laws.
[Correspondent] The president urged viewing any corruption case in any
sphere not as a violation of the law, but as an encroachment on public
[Kuchma] We must do everything to ensure that it is very dangerous to commit
a crime. So to speak, more costly for a criminal. But for now, it does not
work like that. Special services which have professionally trained
specialists remain in a defensive position instead of launching an offensive
on crime. First, the need to cut off organized crime and corruption from
their economic roots is underestimated.
Second, there are serious shortcomings in analytical and intelligence work,
coordination of respective forces, cooperation of state and special
law-enforcement agencies. Third, there is inertia in developing and
implementing modern legal, technical, and technological tools in
law-enforcement activities. As well as international experience. Fourth, the
proclaimed reforms of state bodies are not finished, they are being slowed
down, executive discipline is low. And finally, the fifth point, the level
of professionalism in police, the security service, the prosecutor's office
and the courts is insufficient.
[Correspondent] Ukrainians are losing trust in the Ukrainian court system.
The number of appeals to the European Court of Human Rights is growing.
[Kuchma] The general conclusion is that the situation is very difficult and
requires immediate response from all the state bodies. I emphasize,
immediate response. There must be no delays in implementing real measures
aimed at eliminating the shameful phenomena mentioned today. Be sure, the
conclusions concerning those who delay them will be in line with the
seriousness of the problem.
[Correspondent] As a result of the meeting, the president will give orders
and establish personal responsibility of top officials for every step.
FOR PERSONAL AND ACADEMIC USE ONLY