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Ukraine: World Bank Official Examines Financing Prospects

Washington, 9 July 1997 (RFE/RL) - The success or failure of Ukraine's parliament in dealing with a series of pending reforms in the next three weeks could make a major difference in the amount of external financing available to Kyiv in the next year.

The World Bank's new Country Director for Ukraine and Belarus, Paul Siegelbaum, says at least five bank loans totaling more than $1 billion, approved over the past year, are being held up by lack of parliamentary ratification or passage of reform measures necessary to allow disbursement of the money.

In a wide-ranging interview with our economics correspondent Tuesday, Siegelbaum said the best chance for passage of the measures is before parliament recesses at the end of the month. He says when the legislature returns in the autumn, members will be focused on the next election and by spring, the political world will be focusing on the presidential elections.

He lists reforms of the national bank, the need to liberalize the mechanism for land privatization, particularly in the agricultural sector and the need to remove export duties on live animals and skins, as being at the top of the legislative actions needed soon.

"We would also like the parliament to be a little bit more hospitable to privatization in general and to begin to limit this negative list they have of enterprises that can't be privatized," said Siegelbaum, who just returned to Washington from Kyiv.

Actually, he says, the problem isn't all parliament, but more that the measures are "stuck" in internal governmental congestion.

Siegelbaum says the Ukrainian government is one of the smallest in the world, in terms of the number of people in government when compared to the size of the country. However, he says Ukraine has "one of the most complicated decision making processes of any government anywhere" and officials there acknowledge that this "most complex in the world" system needs to be simplified.

The bank official says it is "critically important" that Ukraine move quickly to rationalize and make more efficient the government's operations. "I hate to say that this technological, structural, organizational aspect is the most important thing and not agriculture or energy," says Siegelbaum, "but that's the point - if you don't have the mechanism for making a decision, what difference does it make what you want to do?"

Siegelbaum says Ukraine must also move to shift its overall strategy from the early transition focus on containing inflation and stabilizing the economy - where it has had good success in recent months - and refocus on resuming growth. That needs to be done in two ways, he says, first by removing the drag on the economy represented by all the government inefficiencies which still persist, and then to free the private sector.

"They've got to unleash the private sector," says Siegelbaum. "They've got too much regulation, the average bureaucrat is much too hostile to the private sector, to the entrepreneur ... (and) they've got to give privatized firms and new private businesses a fair chance to compete for some of the old state monopolies, remove the last vestiges of restrictions on imports and exports and generally harness this private sector engine for growth."

Ukraine has tremendous potential, says Siegelbaum, and he prefers to focus on the positive side. "Ukraine is a big challenge, tremendously complex" with "major challenges wherever you look," he says. "You can either look at the empty part of the glass or the full part of the glass and until they wear me down, I'll try to look at the full part of the glass and be guardedly optimistic."

Siegelbaum says Ukraine has a low debt load in relation to its size and that proposals to sell up to $1 billion in bonds on the markets in Japan and Western Europe by the end of the year will probably be successful. However, he adds, it will be an expensive way for Ukraine to raise the money and will require repayment within three to five years.

Still, he says, Kyiv should be able to handle it if it gets its own structure straightened out.

He says with attention to reforms, a number of sectors in Ukraine have the potential of reigniting economic growth, especially agriculture.

Siegelbaum says a visit to the Donetsk region last week showed how, despite rich, fertile farm lands, less than 50 percent of the grain growing in the fields will ever be harvested because of the lack of machines and the fuel to run them.

Ukraine's energy sector also needs urgent attention, says Siegelbaum, who acknowledges that a program to close unprofitable coal mines supported by a World Bank loan is running slower than expected because Kyiv simply doesn't have the money to pay its share.

Even then, Siegelbaum points out, the government continues to pay profitable coal mines a state subsidy instead of using the money to shut down the mines that are wasting huge sums, retrain the miners, and put the social safety net functions of the mines -clinics, schools, etc. - into the hands of local authorities.