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Ukraine's Domestic Affairs

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Ukraine's Domestic Affairs No. 1 THE UKRAINIAN WEEKLY SUNDAY, JANUARY 7, 2001 7 2000: THE YEAR IN REVIEW on February 22, aimed to “increase the economic inde- cent of farmers leased land, according to the study, while Ukraine’s domestic affairs: pendence of the citizenry and to promote entrepreneurial another 51 percent were planning to do so. activity,” said Minister of the Economy Tyhypko. The survey produced by the IFC came at the conclu- Mr. Tyhypko, who left the government a few weeks sion of a $40 million, five-year agricultural and land the good, the bad, the ugly later over disagreements with Ms. Tymoshenko and was reform project. elected to a vacant Parliament seat in June, indicated that n the domestic front in 2000 it was a roller coast- Trouble in the energy sector the program would assure deficit-free budgets, and even er ride for Ukraine, the economy being one of the budget surpluses for Ukraine, which could lead to repay- few surprisingly steady elements in an otherwise Reform of Ukraine’s most troubled economic sector, ment of wage and debt arrears, a radical reduction in the unstable year. fuel and energy, proceeded much more turbulently and country’s debt load and a stable currency. A stated longer- The new millennium began at a high point for Ukraine. claimed at least two victims. Ms. Tymoshenko, the con- O term goal was the privatization of land and resurgence of At the end of 1999 the nation had re-elected a president troversial energy vice prime minister, was not, however, the agricultural sector. among them, although rumors of her impending political who, in turn, had appointed the first truly reform-minded The government set as a goal an annual GDP increase demise floated through the corridors of government prime minister in the country’s short history. of 6 to 7 percent within five years, with an initial rise in throughout the year. Then the Constitutional Court of Ukraine gave Ukraine GDP in 2000 of 1 percent (a goal easily surpassed), fol- Ms. Tymoshenko’s extensive energy sector reforms a further push toward Europe when it ruled on the next to lowed by 6.5 percent in 2001. The plan envisaged a 1.3 to included decrees that made fuel and energy operations last day of the year that capital punishment is not in line 1.4 percent increase in real incomes for Ukrainians at its more transparent and banned barter operations in favor of with the country’s fundamental law and ordered it stricken completion. a cash-only transaction policy. She also called for govern- from the Criminal Code of Ukraine. The Verkhovna Rada A more immediate target set by Prime Minister ment regulations and oversight of the commodity market. made the required legislative changes on February 22 Yuschenko was to restructure Ukraine’s $2.6 billion for- One of the first issues that confronted Ms. Tymoshenko when it voted to abolish the death penalty. The decision eign commercial debt, much of which was to come due was the large debt owed to Russia by Ukraine’s quasi-pri- fulfilled a pledge made to the Council of Europe in 1995, by April 15. He and Finance Minister Mitiukov under- vate holding company Naftohaz Ukrainy. Ms. based upon which Ukraine gained admission to the took a tour of Europe’s financial capitals at the end of Tymoshenko, after meeting with the chairman of Russia’s European human rights parliament. March to convince holders of Ukrainian Eurobonds to natural gas monopoly, Gazprom, in January returned to The Verkhovna Rada also ratified Protocol No. 6 to the trade them for better yielding, long-term Ukrainian-held Ukraine with the shocking news that not only did the European Convention for the Protection of Human Rights debt paper. By the deadline date some 98 percent of the Ukrainian natural gas distributor owe Russia some $1 bil- and Fundamental Freedoms (the European Convention), creditors, among them many private individuals, had lion but that the company was stealing Russian gas from which provides for the abolition of the death penalty agreed to the debt swap. the Ukrainian pipeline that takes it to Western Europe. except during war or the imminent threat of war. The Verkhovna Rada gave the Cabinet even more At first Naftohaz Ukrainy denied the charges, but But it was the appointment of Prime Minister Viktor good news on April 6 when it approved the “Reforms for within days its president, Ihor Bakai, became the first Yuschenko by President Leonid Kuchma, which many Prosperity” economic program. During floor debate on casualty of the energy sector power struggle. Soon after political experts speculated was a result of pressure from the draft bill, Mr. Yuschenko called the economic revival his resignation the company began negotiations with the West, that gave reason for well-founded optimism as plan his government developed “unique.” Gazprom on debt repayment. At the time, Mr. Bakai said the country entered the new year. The Ukrainian presi- “This is not the first reform program,” explained the he was forced to resign under government pressure dent gave Mr. Yuschenko a free hand in appointing his prime minister, “but it is the first program that has a real- induced by Ms. Tymoshenko, who he said was looking to Cabinet of Ministers and overall responsibility for the istic chance of being given more than just formal political restructure the sector in her favor and to remove political economic reform process. The prime minister, in turn, support.” and business competitors. appointed a Cabinet composed of an eclectic mix of vet- In the first months of the new year, economic reform Ms. Tymoshenko was increasingly criticized by eran bureaucrats, dedicated reformers and unexpected began to take hold in the agricultural sector as well – the President Kuchma also, as the year went on, especially in newcomers, which surprised experts. result of a presidential decree from December 1999 that mid-summer after she returned from Ashgabat, President Kuchma confirmed all of the appointments, disbanded collective farms. On March 28 Vice Minister Turkmenistan, on July 27 and said that she had signed a which included Yurii Yekhanurov as first vice prime min- of Agriculture Roman Schmidt announced that, “the deal for Turkmen natural gas at $42 per thousand cubic ister; Yulia Tymoshenko as vice prime minister of energy Soviet-era system of collective farms has ceased to exist meters. The president said the vice prime minister did not affairs; Mykola Zhulynskyi as vice prime minister of in Ukraine.” He said 10,551 collective farms had been have authority to conclude such a deal and that the agree- humanitarian affairs; Serhii Tyhypko as minister of the reshaped into 11,100 new agricultural enterprises, mostly ment would be far too expensive after transportation economy; Serhii Tulub as minister of fuel and energy; joint stock companies and cooperatives. costs were factored in, which would drive the price up to and Bohdan Stupka as minister of culture. However, he added that some time would be needed to $90 per thousand cubic meters. While Mr. Stupka’s appointment was considered reshape the Soviet-era mentality of many farmers. “I am In the fall, the president signed a slightly more benefi- unusual because until that moment he had been merely an not sure if this Soviet collective farm system has ceased cial deal, which gave Ukraine 30 billion cubic meters of actor of some note with absolutely no government or to exist in the minds [of agricultural workers],” explained Turkmen natural gas at a price of $37 per thousand cubic administrative experience, it was the addition of Ms. Mr. Schmidt. meters, while receiving guarantees from Russia that the Tymoshenko to the prime minister’s team that caused the A survey released by the International Finance energy source would be transported through the country most resonance. Ms. Tymoshenko is the controversial Corporation in mid-August on the changes in the agricul- to Ukraine at minimal cost. president of United Energy Systems, an oil and gas trad- tural sector since the reorganization showed that nearly A second casualty of the energy war was Minister of ing company with a checkered past and close ties to for- half of farmers in Ukraine who took up free enterprise on Fuel and Energy Tulub, one of Ms. Tymoshenko’s subordi- mer Prime Minister Pavlo Lazarenko, who has been their own were already making money. nates, who resigned on June 15 over the reforms his boss charged with illegal money laundering in several coun- In 1999, 47 percent of those who took the plunge into was implementing. Mr. Tulub blamed Ms. Tymoshenko for tries. Many, including eventually the president, expressed private farming prior to the presidential edict showed a being long on rhetoric and short on action. concern that the appointment of Ms. Tymoshenko would profit, with an average level of 16 percent. The average “More than once we discussed the biggest problems of produce a dangerous conflict of interest. area owned by a family farm enterprise was 4.4 hectares the energy sector, but our proposals were either ignored Nonetheless, more good news appeared in early March (10.8 acres). Those farmers who also leased neighbor’s for months, and if accepted only too late,” said Mr. Tulub, when Mr. Yuschenko announced the first gains in lands held between 16.5 and 20.9 hectares. About 13 per- according to Interfax-Ukraine. Mr. Tulub also said he Ukraine’s economy in nearly nine years of independence. He told journalists on March 7 that the country’s gross domestic product (GDP) had risen by 3.5 percent in January and that industrial output had risen by nearly 5 percent over the same period of the previous year, with a January to February increase of 10 percent.
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