Reform Gets Slow Start in Ukraine

Political inertia stands in the way of liberal reform laws

UKRAINIAN President Leonid Kravchuk arrived in the United States this week in a quest to demonstrate that his country is as serious about democracy as Russia is perceived to be and deserves its own share of aid and attention.

Nonetheless, his economic advisers are quick to admit that Ukraine is lagging far behind Russia in market-oriented reforms due to political foot dragging and rivalry.

"Because of political factors, without a doubt we lag behind Russia in the pace of economic reform," says Bolodymyr Naumenko, a presidential economic adviser who is traveling with President Kravchuk.

More than a month after Ukraine's parliament adopted controversial economic guidelines, "the implementation [of reforms] is horrible," says Greta Bull, executive director of Harvard University's project on reform in Ukraine.

"In Russia it's moving. It's at the edge of disaster, but at least it's moving," she adds.

Ms. Bull and other critics say reforms in Ukraine have been caught in a web of political rivalry and rhetoric. Radical plan

On one side of this "political game," as she calls it, has been Kravchuk's new economic adviser, Oleksander Yemelianov, who is accompanying the Ukrainian leader to the US.

Mr. Yemelianov drafted economic guidelines at the president's request in reaction to Russia's decision to raise oil prices to world levels in April as urged by its Western creditors, a move it has since postponed.

In alliance with the nationalist Rukh movement, Kravchuk was quick to lay the blame for Ukraine's economic woes on Russia. The Ukrainian leader pushed for Ukraine's rapid departure from the so-called "ruble zone" and the immediate introduction of a national currency in an effort to gain Ukraine's economic independence from the heavily integrated economic system left by the former Soviet Union.

"Yemelianov's plan is very political and very hostile to countries of the ruble zone. It's unrealistic. Ukraine cannot afford to battle Russia," says Bull.

The moderate opposition group called New Ukraine, led by Ukraine's economic minister, Bolodymyr Lanovy, raised alarm that the radical moves suggested by Yemelianov, such as immediate currency introduction and a sharp cut in trade links with countries of the Commonwealth of Independent States, were premature and could spell disaster for Ukraine's sliding economy.

Under pressure from Mr. Lanovy, Yemelianov backed off from his radical measures, and the parliament chose a compromise, adopting Yemelianov's guidelines in principle and appointing members from the rival team to consult on the specific mechanisms for implementing reform. Moderate response

"The basic premise of Lanovy's program in contrast to Yemelianov's is that Lanovy says 'We're going to build an economy first and then break away,' " says Bull. Lanovy was not invited to travel with Kravchuk on his American voyage.

"The main difference between the two figures is simple," says Bohdan Kravchenko, a Canadian adviser to Ukraine's parliament. "Lanovy is a good technical economist, but he's a terrible politician. Yemelianov is a good politician, but he's not much of an economist. If they don't work together, Ukraine's economy will suffer."

The economic picture in Ukraine grows bleaker each day, with inflation growing at 1 percent a day, rising unemployment, burgeoning trade and budget deficits, and falling production. Enterprises cannot afford higher-priced supplies from Russia and other former Soviet republics.

Mr. Kravchenko and other Western economists working closely with Ukrainian reformers disagree with critics' gloomy picture of prospects for radical economic reform in Ukraine.

Ukraine's legislature passed some very progressive reform legislation, says Oleh Havrylyshyn, a Canadian serving as Ukraine's deputy minister of finance, including laws on privatization of large and small enterprises and a "very liberal" foreign investment law.

The government's draft budget proposal for 1992, still being debated by parliament, is very ambitious, he says. It proposes a reduction in the budget deficit from 12 percent to 2 percent of the GNP through drastic cuts in price subsidies and social programs, meeting the requirements for credit from the International Monetary Fund (IMF), which accepted Ukraine's membership in late April.

"I'd like to see any Western legislature accept this budget," says Mr. Havrylyshyn.

He acknowledges that it was Lanovy, who is also Ukraine's deputy prime minister in charge of economic reform, who authored the program accepted by the IMF.

It is also mostly members of Lanovy's team, primarily young, Western-trained economists, who are working on the mechanisms of economic reform, according to both Bull and Kravchenko. Mykola Sivulsky and Oleksander Sharov, for instance, have been appointed deputy chairmen of Ukraine's national bank, in charge, respectively, of currency introduction and foreign exchange.

Ukraine plans to introduce its national currency in two stages with the multi-use coupons now in circulation serving as transitional money, most likely beginning in June.

"This should be followed by a period of economic stabilization. The economy must stabilize before we introduce our currency, the hryvna, by the end of 1992," Sivulsky says.

The currency is now being printed in Canada.

The monetary reform plan drafted by Lanovy's team, which is likely to be adopted, stipulates Ukraine will return all the rubles removed from its economy to Russia, averting a much-feared hyper-inflationary flood of rubles into Russia's economy. Privatization delayed

Some members of Lanovy's team are also working on the program, setting targets for privatization for 1992.

"It's taking forever," says Bull, a privatization expert. "The Russians have started their auctions already, but I don't think the Ukrainian program will even make it to parliament before June."

"The inertia here has its roots in many fears," says Mr. Naumenko: "the mentality; the unprofessional level of the government, still full of old party functionaries; populist politics in parliament; and the fact that Ukraine has only started building its state institutions. Russia simply took over the Soviet Union's."

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