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February 03, 2005

Analysis: Promises, Promises, Promises

by Jan Maksymiuk

Will they make a good team?

With the announcement of a new Ukrainian cabinet later today, what exactly has President Yushchenko promised?
There had been four or five "serious" candidates for the post of the Ukrainian prime minister and at least as many "potential" ones mentioned in the Ukrainian media before President Viktor Yushchenko designated Yuliya Tymoshenko for the job on 24 January, shortly before his trip to meet Russian President Vladimir Putin in Moscow. Many have seen this nomination as Yushchenko's gesture of defiance in the face of Moscow's apparent dislike of Tymoshenko (she is still on Russian prosecutors' list of wanted people). However, there were also analysts who argued that Tymoshenko is the best person to run a new Ukrainian cabinet because of her immense working energy and political optimism. Indeed, judging by the massive load of Yushchenko's election promises, the new government will have to possess first and foremost extraordinary vigor and self-confidence in order to begin delivering on what Yushchenko promised his compatriots in last year's presidential campaign.

The Ten Steps

To make his election manifesto -- "Ten Steps Toward the People" -- more comprehensible and digestible for ordinary Ukrainians, in November 2004 Yushchenko publicized a dozen draft decrees that he pledged to sign immediately after his inauguration. Propagandistically, it proved to be a very good move, which was subsequently emulated by his main presidential rival, then Prime Minister Viktor Yanukovych. The texts of these decrees are still available at Yushchenko's personal website (http://www.yuschenko.com.ua). They have also been recently republished or summarized by many Ukrainian media outlets, primarily unsympathetic to or critical of Yushchenko, with ironic comments suggesting that he now may not be so eager to remember them. True or not, Ukraine's new president indeed seems to be presently concerned more with decrees appointing and sacking state officials than those shaping a new socioeconomic system in the country.

What has Yushchenko pledged to change in the socioeconomic sphere in order to make people feel that his presidency will contribute to a palpable and fast improvement of their lives? First of all, Yushchenko pledged to maintain the lavish increase in pensions made in September 2004 by then Prime Minister and presidential candidate Viktor Yanukovych. The move, which was clearly intended to win over pensioners, doubled the minimum monthly pension from 137 hryvnyas to 284.6 hryvnyas and appropriately increased all other pensions for more than 11 million people. At that time, the pension jump increased the pension fund's monthly expenses by 1.1 billion hryvnyas ($207 million) to 4.1 billion hryvnyas.


Yushchenko promised that his first presidential decree will establish the subsistence minimum for 2005 at 423 hryvnyas ($80) per month, additionally stipulating that the minimum monthly wage and pension should not be lower than the subsistence minimum. In fact, this promise was already endorsed by the Verkhovna Rada in October, when 250 lawmakers voted to pass a bill increasing the average monthly subsistence minimum from 362 hryvnyas ($70) to 432 hryvnyas as of 2005. The bill will put an additional burden on the 2005 budget, comparable to that connected with the pension hike in September.

Moreover, Yushchenko pledged to compensate Ukrainians for their Soviet-era savings that have been lost or devalued after the breakup of the Soviet Union. According to one of Yushchenko's draft decrees, the state is to immediately recognize those savings as its internal debt and begin repaying it with "additional budget revenues" and money obtained after a review of some dishonest privatizations. The list of dishonest privatizations is unknown but this review is surely to include the notorious privatization of the Kryvorizhstal metallurgical giant; the state budget is expected to obtain an additional $500 million either from the current owners of Kryvorizhstal -- oligarchs Viktor Pinchuk and Rynat Akhmetov -- or from new investors if the previous privatization deal is canceled altogether.

Last but not least, Yushchenko promised to increase the one-time social payment to the parents of a newborn child, from the current 725 hryvnyas to 8,460 hryvnyas (that is, almost 12-fold). If Ukraine's Orange Revolution is followed by a baby boom -- as some Ukrainian commentators have already predicted -- the parents are likely to remain sympathetic to Yushchenko's for more than one political season.

Money Tree

Where is Yushchenko going to take money to finance his generous social payments? An exact economic plan of the new government has not yet been revealed but there are some indications to this in his election manifesto. According to Yushchenko, some 55 percent of the country's economy remains in the shadow sector. Therefore, Yushchenko intends to stimulate the process of reducing this sector to the smallest possible extent. The stimulation may include extensive tax amnesties and tax burden reductions. Second, Yushchenko intends to cancel preferences in paying value-added tax by investors in the so-called free economic zones. Yushchenko expects that this move will bring an additional 5 billion hryvnyas ($940 million) into the state coffers annually.

Yushchenko and Tymoshenko have already proven that their cooperation in the government can be fruitful and appreciated by ordinary voters. When Yushchenko was prime minister and Tymoshenko his deputy for energy issues in 2000, they managed to divert some "additional revenues" from the shadow economy by skillful fiscal and administrative management -- the results of this were immediately felt by millions of Ukrainians. They will now have to use their skills, as well as their enhanced political prerogatives, to a much greater extent. The stakes -- which include not only the political fate of a new cabinet, but also the geopolitical destiny of the country as a whole -- are now incomparably higher.
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