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Ukraine: Kyiv Hopes For Economic Bailout

By Jan de Weydenthal and Stefan Korshak

Prague, 21 July 1998 (RFE/RL) -- U.S. Vice-President Al Gore is today traveling to Ukraine to discuss trade and economic cooperation, as well as the Chernobyl situation. Two days from now (July 23), a delegation of the International Monetary Fund is expected in Kyiv to talk about a possible emergency credit.

Ukraine's economy remains deeply depressed. The country's gross domestic product is currently less than 40 percent of the pre-independence levels, and barter accounts for most trading activity. Ukraine also needs to repay massive domestic and foreign debts, but with the continuing downfall in budget revenues its finances are close to collapse.

Gore and Ukraine's President Leonid Kuchma are to discuss what can be done at a meeting of the U.S.-Ukraine joint commission. It's likely that Gore will press the need for urgent reforms to invigorate the economy and to reduce pervasive corruption. Ukraine is presently the third largest recipient of U.S. aid, receiving about $225 million for instance in the current year. And Kyiv wants that American aid to continue.

Ukraine also hopes that the talks with the IMF will lead to release of a loan of some $2.5 billion. Speaking at the weekend, Kuchma said that he was "convinced that everything will be all right" and that the talks with the IMF will bring the final decision on the loan.

Kuchma's optimism has apparently been prompted by news brought from Washington by Deputy Prime Minister Serhy Tyhypko and Finance Minister Ihor Mityukov, who reported that the IMF might be leaning to grant the loan. Kuchma appears also to hope that the recent IMF bailout of Russia increases Ukraine's chances of receiving further credits as well.

The Russian bailout has been linked to Moscow's promises of implementing economic reforms. Could the same be expected in Ukraine?

Kuchma himself is supportive of reforms. But there are considerable doubts whether he will be able to persuade the politically hostile parliament to legislate the needed changes and to force the sluggish bureaucracy to implement them.

The Verkhovna Rada (Parliament), dominated by the communists, has yet to approve the 1998 budget which imposes austerity in accordance with the IMF recommendations. The Rada has still to accept Kuchma's decrees to streamline the tax system. And there is no guarantee that this will be done any time soon.

But without a serious and demonstrated commitment to market-oriented reform it is unlikely that the IMF will give any more aid.

Analysts say the last IMF loan to Ukraine appears to have been effectively wasted, with no discernible effect on the economy. Last year, the IMF turned down a request from Kyiv for a major credit. This year it has suspended negotiations on similar help.

The forthcoming negotiations are certain to be difficult.