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Poland, Belarus & Ukraine Report: April 15, 2003

15 April 2003, Volume 5, Number 14
PUBLIC-FINANCE REFORM PLAN STIRS CONTROVERSY. Prime Minister Leszek Miller on 14 April denied the circulating rumors that "Finance Minister Grzegorz Kolodko has tendered his resignation. "One can only ask where such statements come from and whether someone is interested in stirring up such hysteria," Miller said on Polish Radio. Some Polish media reported last week that Kolodko is set to resign over a lack of support for his proposed reform of public finances.

Kolodko's plan to overhaul public finances has been met with criticism not only outside the government -- most notably from National Bank Governor Leszek Balcerowicz and the Monetary Policy Council (RPP) -- but also by Economy and Labor Minister Jerzy Hausner, who reportedly proposed a rival reform plan differing from that of Kolodko on many important points.

Kolodko's reform proposal is based on the assumptions that Poland's GDP will grow 3.5 percent in 2003, 4.9 percent in 2004, 5.4 percent in 2005, and 6 percent in 2006. Some independent analysts claim that these projections are overly optimistic and carry a risk that budget revenues may be considerably overestimated by the finance minister.

On the revenues side, Kolodko proposes that all tax deductions for individuals be abolished, thus bringing to the budget an estimated 370 million zlotys ($94 million) in 2004, 2.4 billion in 2005, 2.8 billion in 2006, and 6.6 billion in 2007. He offers three variants of changes in the current personal income-tax rates: 1) to reduce the lowest tax rate (18 percent) to 17 percent in 2005 and 14 percent in 2006; 2) to introduce two rates for the lowest income payers -- 0 percent and 18 percent for in 2005 and 2006, and 0 percent and 16 percent in 2007; 3) to keep the current rates of 18 percent, 30 percent, and 40 percent in 2004-06, and lower them in 2007 to 17 percent, 29 percent, and 39 percent, respectively.

Kolodko proposes introducing a new, 20 percent tax on personal capital gains (interest income from savings, dividends, stock-exchange transactions). Estimated revenues in 2004 may amount to 1.8 billion zlotys.

As regards the corporate income tax, Kolodko wants to extend it to incomes of individuals running private businesses that under the current regulations pay only personal income tax, as well as introduce corporate income tax on farmers (at a rate of 9-10 percent). Simultaneously, the plan calls for abolishing all tax breaks. It also assumes that the corporate income tax will remain at the current level of 24 percent with the possibility of reductions by local governments to 22 percent or even 20 percent.

The program also includes the possibility of gradual introduction of tax on real estate in 2006, with the proposed rates set at 0.1 percent of the value for residential buildings and 2 percent for commercial ones.

On the expenditures side, the plan postulates implementing tighter controls over spending in special funds and independent agencies of the state treasury; in particular, Kolodko wants to include nine of 20 special funds, as well as 58 separate special accounts, into the state budget. Moreover, Kolodko wants to abolish automatic indexation of some entitlements (his plan lists 99 such spending items).

Kolodko also proposed releasing up to 18 billion zlotys from the revaluation reserve of the National Bank -- which accounts for the difference between the purchase cost and the current currency-market value of the bank's foreign-currency reserves -- into the budget to finance Poland's contributions to the EU budget and projects involving structural funds from the EU. Balcerowicz and the RPP have opposed this move, saying that, since the revaluation reserve is a de facto paper entry on the central bank's balance sheet, the bank would actually have to print additional money in the amount equivalent to the reserve, thus spurring inflation.

Tensions between Kolodko and the National Bank mounted last week, with both sides exchanging acrid assertions and remarks. "[Kolodko's plan] cannot be recognized as a comprehensive program of actions leading to a deep and lasting fiscal reform," the RPP said in a statement. According to the RPP, the proposed changes to taxes will not stimulate economic growth but will only increase fiscal burdens. "Reforms on the spending side are missing, and without these reforms it is difficult to eliminate the deficit," Balcerowicz commented. "Printing additional money is not the way to co-finance EU aid," he added.

Kolodko retorted by saying, "If the central bank is serious about my drive to cut the fiscal deficit, they should support me." Referring to his proposal to use the revaluation reserve, he said, "If the central bank opposes this move, it will be a very ill-advised, short-sighted, and stupid policy."

Kolodko also lashed out at experts from the European Commission asserting that Poland can expect 2.5 percent growth in GDP this year and a jobless rate of 20.6 percent (Kolodko projected it at 17.7 percent). "The European Commission is wrong," he said. "They should be ashamed of formulating such unprofessional forecasts. If they want to know how high unemployment will be in Poland, they can call me and ask." He brandished a placard with his telephone number at a news conference, so officials in Brussels could write it down and get in touch with him directly.

But persuading skeptics in the RPP and Miller's cabinet is one thing, and convincing one of the opposition parties to support the public-finances reform proposed by the minority cabinet is another. Possible support from the opposition Civic Platform has been suggested by both Kolodko and Miller. In theory, the Kolodko-proposed greater budget transparency and abolition of several special funds and agencies is in line with policies advocated by the Civic Platform. However, the Civic Platform is in favor of far deeper tax cuts than those proposed by the finance minister, and it is highly doubtful whether the party will support Kolodko's plan in its current wholesale form, especially in the face of the early parliamentary elections, tentatively scheduled for June 2004. (Jan Maksymiuk)

OPPOSITION CHANGES POSITION. It seems that the Ukrainian parliamentary opposition -- the Communist Party, the Socialist Party, and the Yuliya Tymoshenko Bloc -- has already abandoned their unproductive drive to oust President Leonid Kuchma ahead of the end of his second term in the autumn of 2004. It should be remembered that not so long ago, on 9 March, tens of thousands of people at an antipresidential rally in Kyiv demanded early presidential elections. Now, however, the opposition's main concern appears to be about preventing Kuchma from remaining in office beyond his legitimate term -- this possibility is implicitly included in the bill on political reform that Kuchma submitted to the Verkhovna Rada last month (see "RFE/RL Poland, Belarus, and Ukraine Report," 11 March 2003).

On 14 April, the leaders of the three above-mentioned opposition parties -- Petro Symonenko, Oleksandr Moroz, and Yuliya Tymoshenko -- and Our Ukraine head Viktor Yushchenko signed a "Memorandum Regarding Political Reform," which modifies their hitherto-pursued goals to some significant extent.

The memorandum proposes that the president, the Verkhovna Rada, and the local-government bodies work until the end of their current terms.

Regarding changes in Ukraine's constitutional system, the memorandum postulates to preserve the unicameral parliament (Kuchma proposed two houses, and a reduction in the number of lawmakers); to give the parliament the right to approve a prime minister (nominated by the president) and all cabinet ministers (nominated by the prime minister); and to give the president the right to dissolve the parliament if it fails to gather for a session within 30 days after its election or form a cabinet within 60 days after the inaugural sitting.

The memorandum also proposes that parliamentary and local elections (except for rural councils) be held under a fully proportional system.

The opposition document's slams Kuchma's proposals of constitutional reform by saying that these proposals "do not meet the interests of society; are conducive to making the presidential power absolute, abolishing the parliamentary system and sprouts of the independent judiciary, and replicating structures and functions of the authorities; and destroy local government." The opposition is convinced that the presidential proposals to change the constitution "are dangerous for society and lead to the usurpation of power by giving a small circle of people the right to make strategic decisions in the country [and] ruin the state integrity."

The four leaders also signed an appeal to Kuchma proposing to hold "public television debates" on constitutional changes in order to clarify "on what positions the president stands and what positions are proposed by us."

It seems that proposals to reform the political system in Ukraine (first voiced by the opposition in 2000 and "appropriated" by Kuchma in 2002) have finally been transmitted to the electorate and found some support there. According to a poll conducted by the Razumkov Center for Economic and Political Studies earlier this month, 85.2 percent of Ukrainians support the presidential proposal to reduce the number of lawmakers from 450 to 300; 48 percent back the presidential idea to hold presidential and legislative elections in the same year; and 43.7 percent want to give the president the right to dissolve the parliament. It appears that sooner or later Ukraine's constitutional system will have to be modified.

The opposition obviously feels the public urge to reform the political system in the country as a way out of the permanent political crisis, but it is also aware of the danger of extending Kuchma's term in office by supporting his draft bill (while this danger is only dimly, if at all, perceived by the general public). Therefore, the opposition's efforts now seem to be focused on torpedoing the Kuchma-proposed constitutional-reform bill in the parliament and, possibly, delaying "essential" constitutional amendments beyond the end of Kuchma's term, when the presidential election is expected to bring not only a new president but also a change in the political climate and ruling elites. (Jan Maksymiuk)

GOOD NEWS FROM UKRAINE. On 28 January the presidential administration's Department for Information Policy began sending, on a daily basis, "Good News from Ukraine" newspapers to the Ukrainian diaspora. The first issue included a cover letter signed by the head of the department, Serhiy Vasylyev, stating that when used, "Good News" should be cited as the source (i.e., not the presidential administration).

The "news media project," as Vasylyev called it, aims to accomplish three things. Firstly, by its very title the "media project" seeks to counter Ukraine's bad international image. "Good News from Ukraine" is the latest example of Ukraine's elites attempting to undertake various projects to counter this image, all with little success to date. It follows the creation in June 2001 of the Ukrayina Cognita NGO, after Ukraine's international image took a dive during the Kuchmagate scandal.

Secondly, the Department for Information Policy was created after Viktor Medvedchuk became head of the presidential administration in May, and its policies reflect his more aggressive style. The Department for Information Policy has 38 staffers and is one of the largest in the presidential administration (the departments of Foreign Policy and of Economics have 23 and 26, respectively).

The department was reportedly implicated in the release of "temnyky" (instructions to television stations on what to cover and ignore) in the summer-fall of 2002. Vasylyev attempted to counter criticism of growing censorship voiced within Ukraine and in the Council of Europe by organizing weekly surveys of the Ukrainian media showing how free it was in its criticism of the executive. These surveys were then sent to the Council of Europe's Hanne Severinsen. Vasylyev stopped producing these surveys after Severinsen publicly ridiculed them in the Parliamentary Assembly of the Council of Europe.

Thirdly, the aim is to influence the Ukrainian diaspora through its media outlets. The thinking behind the "media project" and the tactics used are similar to those in the Soviet era when Tovarystvo Ukrayiny (Society for Cultural Relations with Ukrainians Abroad) published a weekly newspaper in English and Ukrainian entitled "News from Ukraine/Visti z Ukrayiny," which was unavailable inside Ukraine. Tovarystvo Ukrayiny had limited appeal except with Ukrainian communist groups in the U.S. and Canada. "News from Ukraine/Visti z Ukrayiny" specialized in publishing attacks on Ukrainian nationalist emigres as well as accusations of their involvement in war crimes during World War II.

Will the presidential administration be more successful in influencing the Ukrainian diaspora than Tovarystvo Ukrayiny? Unlike when "News from Ukraine/Visti z Ukrayiny" was published, "Good News from Ukraine" is appearing during the age of the Internet. Many different news sources on Ukraine are now available and most newspapers in Ukraine also appear on the web. "Good News from Ukraine" therefore has much competition from other, far better sources of information.

Why is "Good News from Ukraine" only sent to diaspora publications? Presumably because Western media outlets, just like the Council of Europe, would find the style and tone of information produced by the presidential administration unusable. There is also an assumption that diaspora organizations remain influential within the Western media and governments, something which is highly questionable.

"Good News from Ukraine" is also highly biased towards issues beloved by the Ukrainian diaspora. These include a heavy dose of articles devoted to language, culture, nationalist movements in the 1940s (the Organization of Ukrainian Nationalists, OUN, and Ukrainian Insurgent Army, UPA), and steps taken by President Kuchma in honor of nationalist events or historical figures. Marco Levytsky, editor of Canada's largest Ukrainian newspaper, the biweekly, Edmonton-based "Ukrainian News/Ukrayinski Visti," finds it suspicious that "Good News from Ukraine" is so heavily slated towards the news that the diaspora so wants to read. As Levytsky asks, "If the presidential administration feels so favorably about OUN-UPA, why don't they rehabilitate them on the national level, and why don't they send these stories to newspapers in eastern Ukraine, which is where the most education about OUN-UPA is needed?" "Good News from Ukraine" published a telegram dated 13 March and sent to the family of Yaroslava Stetsko, head of the Congress of Ukrainian Nationalists, who died the day before. Yet, neither Kuchma nor Prime Minister Viktor Yanukovych attended her funeral three days later.

"Good News from Ukraine" is unlikely to be used by editors from the younger generation and those who edit non-party newspapers, such as "Ukrainian News/Ukrayinski Visti." It will, however, be favorably received by newspapers linked to the OUN-b (Stepan Bandera) or OUN-m (Andriy Melnyk) and where editors belong to the older generation. This reflects similar divisions in Ukraine that have existed within the national-democratic camp between nationalist derzhavnyky (statists) and reformist anticommunist oppositionists since 1992. The division still plagues Viktor Yushcheko's Our Ukraine, preventing it from fully moving into the opposition camp. Derzhavnyky place Ukrainian statehood above all else and see criticism of the president as destabilization of this statehood.

Only three months after "Good News from Ukraine" began to be issued, the World Congress of Ukrainians (WCU), led by OUN-b member Askold Lozynsky, issued an appeal "To Ukrainian National Central Representations in the Diaspora." This followed debates on the pages of "The Ukrainian Weekly," North America's large English-language newspaper, over how to respond to problems in Ukraine and whether criticism merely worsened Ukraine's image. The debates included letters from Lozynsky, former editor of New York's OUN-b "Natsyonalna Trybuna" newspaper Ihor Dlaboha, former head of RFE/RL's Ukrainian Service Roman Kupchinsky, and others.

The WCU statement asked the diaspora organizations and media to "work towards a just and enlightened treatment of Ukraine." The WCU see Ukraine as "collateral damage" after 11 September 2001, when the U.S. allowed Russia to increase its influence over Ukraine. The WCU has been a strong critic of the "amoral" Bush administration in what it sees as its double standards towards Ukraine and in its Iraq policy. These views within the nationalist wing of the Ukrainian diaspora reflect the suspicion that Russia is behind the Kuchmagate scandal.

In a similar pattern to recent claims of double standards by the presidential administration, the WCU statement also says, "Unfortunately, Ukraine has been singled out as one of the most corrupt and abusive countries in the world," but that the West also has its fair share of similar problems. With such a similar political culture, "Good News from Ukraine" may therefore be relatively more successful than what Tovarystvo Ukrayiny ever hoped to achieve.

This report was written by Dr. Taras Kuzio, resident fellow, Centre for Russian and East European Studies, University of Toronto.

"This is no threat to the freedom of expression in Ukraine. But this will simply teach many people to correctly and politely behave in their posts. This will teach many people to choose words. This will instill good manners in many people, in the event they were not taught them in childhood, at school, or at the educational institutions where they studied journalism. Possibly, many people will be forced to eventually educate themselves in law. Before they start talking idly, they will have to think about vocabulary." -- Serhiy Vasylyev, head of the Ukrainian presidential administration's Department for Information Policy, commenting to RFE/RL's Ukrainian Service on 11 April on the recent opening of a number of criminal cases against media outlets for allegedly defaming the president (see "RFE/RL Newsline," 10 April 2003).

"Whom are you trying to scare, beggar? I'll repeat here to all such shits: I said once that if I could help better without my head than with it in the struggle for my country, Ukraine without Kuchma, I would take it, my head, and bring it to them on Bankova Street [the presidential office in Kyiv]. Choke on it, you greedy dogs! But choke on it up to the full, final, irrevocable death of your damned regime, which has deprived people for many years to come of the political, economic, moral, and spiritual benefits that independence offered to them. They own the country, rule the country, hold the country outside of any civilized norms whatsoever, and we cannot cope with them and deliver the country from them, because we too frequently cover our fear of the regime with the need to act only within the framework of civilized norms." -- Journalist Tetyana Korobova, responding to Vasylyev in the 14-20 April issue of "Hrani," the Kyiv-based weekly linked to the Socialist Party.