Accessibility links

Ukraine: Lending Depends On The Pace Of Reform

  • Robert Lyle

Kyiv, 23 March 1998 (RFE/RL) -- The head of the World Bank's resident office in Ukraine, Edilberto Segura, says he hopes there will be a "window of opportunity" between this month's parliamentary -- and next year's Presidential - elections for Ukraine to get back on the reform track.

Segura says most of the bank's lending programs are no longer active in Ukraine because the necessary structural reforms have been slowed, stopped or ignored, especially in the lead-up to this week's elections for parliament.

World Bank lending depends "on the pace of reform," Segura told a group of international financial journalists visiting Kyiv, and the pace has nearly stopped in Ukraine.

A $300 million loan for rehabilitating the Ukrainian coal industry is undisbursed, another $300 million loan for agricultural rebuilding, and a $317 million loan for modernizing the electric power industry are all laying undrawn, says Segura, because the reforms needed "are not politically attractive" at the moment.

Segura says he expects that after the parliamentary elections, the Ukrainian government will feel able to begin a "major revival of reform efforts." However, he added quickly, "we will wait and see for sure."

He says the bank and other international institutions are already discussing a number of other seriously needed projects with Ukrainian officials. But he says those won't even be considered -- and the older ones won't be reactivated -- unless the government is ready to make a serious and long-term commitment to the reforms.

Of the $2.2 billion in loans the bank has committed to Ukraine, Segura says only about $1 billion has actually been released to Kyiv.

The view that reforms have virtually stopped in Ukraine is not just the perception of the World Bank either, he says. "The pace of reform is too slow as shown by the fact that foreign investors are not yet coming into Ukraine." Foreign direct investment in 1995 amounted to only 260 million dollars in Ukraine, he says. It rose to 450 million dollars in 1996 and went up to 760 million dollars in 1997.

"But that's just peanuts," says Segura, especially compared to the thousands of millions of dollars being invested in far smaller countries in Central Europe which are far more advanced in the reform process.

Ukraine chose to take a slower route to reform, he says, so while it was more gentle in the early stages of transition, it has meant that the country cannot make a rapid recovery quickly either.

The government was "very cautious" about shutting down plants at a time when its industry was facing a 10-fold increase in the cost of energy, for example, at the very time its traditional markets dried up, says Segura. Since their products couldn't compete in western markets either, it left them unprepared to survive in a market economy.

The bank's chief economist in Kyiv, John Hansen, says part of Ukraine's problem was that because of its more homogenous population and general lack of foreign contacts in the days of the Soviet Union, it was less prepared than Russia and the Baltic states to deal with the many needs of transition, including developing foreign trade and drawing foreign investment.

Hansen and Segura say that even without considering the need for quick reforms, Ukraine will have to act after the election if it is to preserve its economy. The current budget deficit is "unsustainable," they say, especially with the government paying interest as high as 50 percent on treasury bills to finance its operations.

Commercial interest rates of as high as 60 percent are unusable by business, and wage and pension arrears must be repaid if there is to be any hope for major segments of Ukraine industry.

Still, the bank officials are optimistic that Ukrainian officials will take advantage of the time between polls to take the moves that are so long overdue.