q&a:
economist viktor skarshevsky
'an indicator is one thing, reality is another'
viktor shkorshevsky works as the director of economic programs for the ukrainian center for economic and political studies (uceps) in kyiv. his department analyzes and reports on current and future trends in ukraine's economic affairs, as well as on government reform programs.
shkarshevsky worked as an economic expert in the cabinet of ministers, where he assisted former prime minister valery pustovoitenko, first deputy prime minister anatoly kinakh, deputy prime minister, serhy tyhypko. he took leave of absence from the in 1999 for six months to direct the economics department of the ukrainian union for industrial workers and entrepreneurs before returning to the cabinet and joining uceps early this year.
q: a hundred days have passed since prime minister viktor yushchenko's government assumed office. marking the date, the tv channel inter conducted a poll on march 31, asking its viewers if their living standards had changed over the period. the overwhelming majority said their living standards had deteriorated. does this mean reforms are not working?
a: i agree with polish deputy prime minister leszek balcerowicz, who said during a recent visit to kyiv that at least a year must pass before ukrainians will see the results from reform.
q: how would you evaluate the effectiveness of the government's economic policy?
a: it is very difficult to evaluate the effectiveness of economic reforms today. it goes without saying that there have been mistakes. to date, i have not noticed the radical transformations, which have been talked about. yes, there have been half-measures taken, but i would wait a month or two, until summer, before issuing the first report card. the new cabinet was formed slowly and has been running the show for less than three months.
what i have found somewhat irritating is the penchant of some in the new government to report - and take credit for - improvements in ukraine's economic situation. but if you dig a little, the evidence for such assertions is lacking, and i attribute them to naivete, to political maneuvering, or wishful thinking.
q: but what about the 6 percent leap in gross domestic product in the first two months of the year and the other positive indicators media have harped upon of late?
a: an indicator is one thing, reality is another. gdp has a tendency to remain unchanged for a long time and it would be incorrect for the new government to take credit for its rise. gdp in 1999 represented approximately 36 percent of what it was in 1992. ukraine's production base has become so narrow that a 5 percent fluctuation in gdp can be attributed a statistical error. also, it was inevitable that gdp would rebound slightly following its decrease in 1999 as a result of the august 1998 economic crash.
i would be hard-pressed to assert that tax reform, revocation of tax privileges, measures to attract foreign investment, private ownership of land, or the like are behind the rise in gdp.
q: what factors have contributed to the increase in gdp?
a: industrial production in ukraine has not changed fundamentally over the past several months, nor has the rate at which ukraine's debt in relation to gdp has increased and continues to increase. when you look more closely and identify the reason why gdp has increased, it becomes clear: we do not pay for energy - electricity and natural gas. that circumstance has allowed ukrainian enterprises to increase production.
for example, metallurgical output - an energy consuming industry - has increased by 15 percent. have ukraine's metallurgical works started to pay more regularly for natural gas and coal? i don't have concrete data on hand, but i am relatively certain that less than 20 percent of electricity consumed in ukraine is paid for. increased payments for gas are usually accompanied by a decrease in payments for electricity and vice versa.
q: how have ukrainian metallurgical works increased metals exports? metallurgical production
accounts for a significant percentage of ukraine's industrial production, which officials say has risen significantly over the past two months.
another industry, the food processing sector, posted a 30 percent gain. why? because of last year's devaluation of the hryvna and the resulting reduction in foreign food imports. is this an achievement of new economic reforms? i don't think so. q: regarding the land reform, on april 1 yushchenko declared that there were no more collective farms... a: that declaration, i think, was an [april fools' day] joke. one indication of the success of land reform is the willingness of ukrainian banks to extend credits to the agricultural sector. their reticence indicates that they, at least, are unsure of being remunerated. the most important indicator that land reform is working will be when banks recognize land as a commodity and are willingly make loans to agricultural entities.
q: have the ongoing administrative reforms changed the way the government works?
a: one of the most positive developments in the government have been administrative reforms. now, the procedure for taking decisions in the cabinet has become more transparent. although it is still possible for political heavyweights to lobby decisions in their favor, the process has become more difficult. the procedure today allows government officials to identify those behind initiatives and to follow - and take part - in the decision-making process.
a negative aspect of the reforms has been the inconsistencies in their implementation. at first, the cabinet said it would downsize the government, but recently revised those plans and announced increases in staffing.
it would be better if government increased by a factor of 10 the number of federal workers if that could help the economy function more effectively. the staffing issue is one indication that the new cabinet did not have a clear plan when it was formed.
q: have you noticed greater coordination between government ministries and agencies?
a: government affairs remain relatively chaotic. i believe the intention of government officials to be sincere, but for both subjective and objective reasons, not everything has fallen into place. for example, the state tax administration and its subdivision, the state tax police, have reinforced the notion that we are not living in a society governed by laws. when representatives of the tax administration appear on television after an arrest and explain that they won't release so and so because he might gain access to financial resources, which will allow him to buy freedom, something is amiss. especially, when yushchenko appears in the same broadcast and says, "we are conducting honest and principled policies."
of course, i think the prime minister is trying to do the right thing, but there remains dissonance between what has been promised and what is actually taking place.