The prospects of Ukraine’s membership in the EU are hanging by a thread. The statements of European top officials, made after the verdict was handed down to the former prime minister Yulia Tymoshenko, are a clear testimony to this. However, this knocking is not only a red card for Ukraine’s leaders, who had been meaning to sign the Agreement on free trade area and the Association Agreement with the EU by the end of 2011. The worst damage from such assessment is the deterioration of the country’s investment image in the eyes of international business. “Human rights and the rule of law are the EU’s basic principles. We want to see genuine improvement in all regions of Ukraine. Businessmen look at the local conditions and at the political situation in Ukraine. If Ukraine moves towards Europe, the situation here will also improve, and investors will be arriving,” said Harry Willems, advisor to deputy head, the mission of the Embassy of the Netherlands to Ukraine at the 11th International Economic Forum in Truskavets as reported by UNIAN with reference to Radio Liberty.
How are Ukraine’s authorities going to respond to such statements in order to convince potential investors of genuineness and impartiality of the domestic law? How big is the risk of Ukraine giving up its pro-European line, in the context of severe censure on the part of Europe? What reforms does the nearest future have in stock for Ukrainians? Vice prime minister, minister of social politics of Ukraine Serhii TIHIPKO shared about these and other problems in a special interview for The Day.
On October 24, an IMF mission is coming to revise the program of its cooperation with Ukraine. What is your forecast for the outcome of this visit?
“It’s absolutely positive. Ukraine needs the cooperation program with the IMF due to a number of reasons. Firstly, it is the right kind of program. Secondly, it is pro-Ukrainian, since it does not envisage anything harmful for the country and its citizens in the future. I hope that the negotiations with the IMF will result in the allocation of another credit tranche before this year is out. It can even be a double tranche, around three billion dollars.”
Does the revision of the program mean that the question of gas price raise and, consequently, the raise of utility prices for the population is postponed, or is it just somewhat moderated?
“The IMF is interested not in the raising of the tariffs, but in the improvement of the financial situation in the NJSC Naftogaz Ukrainy. The situation can be changed in two ways: through the raising of the tariffs for the population, or through bringing the gas prices down.”
“The optimum solution to this question is now a challenge that the government is facing. The problem is that the NJSC Naftogaz Ukrainy provides teplokomunenerho’s (public central heating companies) with nearly eight billion cubic meters of gas. The price for the population is calculated starting at 1,300 hryvnias for 1,000 cubic meters, while the actual cost of Russian gas is much higher. It is necessary to look into the ways to reduce the price for Russian gas instead of putting this onus on the population.”
“THE RISE OF TARIFFS IS NOT ON THE AGENDA YET”
Did I get it right that the gas prices for the population are not going to rise so far?
“That’s exactly so. The rise of tariffs is not on the agenda yet. The government is doing everything to keep it up.
“I am worried by another problem: it is necessary to equip homes with meters.”
You said you expected gas prices to drop. What is your forecast concerning the new price?
“A fair price for Russian gas for Ukraine is nearly twice lower compared with the present.”
Do you think it is realistic to negotiate 250 dollars for 1,000 cubic meters given the recent statements by our Russian counterparts?
“Gas prices are negotiated by the president and prime minister of Ukraine, and the talks are tough. Therefore it is hard to say what new price will be like and when it is going to be agreed.”
Can Tymoshenko’s sentence (concerning the illegitimacy of her actions) become an argument for the revision of gas contracts signed with Gazprom in 2009?
“In my view, Tymoshenko’s sentence will not become an argument for the revision of previous agreements. This process should not be politicized. Everything is as simple as this: Ukraine is a powerful consumer of Russian gas. And our country should not pay for Russian gas more than Europeans do. But if we resort to arbitrage in the gas issue, the search for the solution may drag on and on. This is not the way to do it. Ukraine and Russia must settle the gas issue like good neighbors and reliable partners.”
The draft budget for 2012 envisages the rise of social standards, despite experts forecasting an inevitable second wave of the world economic crisis. Where is the government going to find additional incomes to raise Ukrainians’ salaries and pensions?
“Next year we expect a five percent growth of the GDP, as well as the reduction of the budget deficit and Pension Fund deficit up to 2.4 billion hryvnias. Budget forecasts are rooted in clear-cut calculations based on today’s rate of economic growth. Under such conditions I think it is quite right to increase benefit payments, since it will promote the growth of the domestic market and thus, the growth of economy. Poland’s experience also testifies to the correctness of this approach. It was much easier for Poland to overcome the crises than for other EU countries because the development of its economy depends on the inner market rather than on exports.”
The renowned world economy experts warn that 2012 is not going to be an easy year. How hard do you think is next year going to be for Ukraine’s economy?
“The main threats can come from the outside. So far the statements of the world’s leading economists show that the worsening of the global economic situation has 90 percent probability. And this is the biggest threat for us.”
“THERE ARE CERTAIN SIGNS OF THE APPROACHING SECOND WAVE”
Can you see the signs of the crisis?
“Today there are certain signs of the approaching second wave of the crisis. Ukraine can assuage them, in particular, through cooperation with the IMF. It does not only mean cheap long-term money. Also, it is a reliable sign to the investors that Ukraine is doing everything properly. Besides, in order to prevent the crisis, the country has to lead a well-balanced domestic economic policy, stimulate capital investments, simplify business regulations, etc.”
As far as I can see, the tax saga for small and medium business is not over yet, because entrepreneurs are again rallying outside the parliament and government’s offices. When are their problems going to be solved?
“The amendments to the Tax Code and the suggestions concerning the simplification of taxation in particular, are already past the first reading in the parliament. They will be passed in the nearest future.”
The first reading does not mean that they will be passed as a whole with 100 percent probability.
“I am convinced they are going to be passed. This question was discussed at meetings and conferences with the prime minister, as well as at the consultations with the parliament majority and the relevant parliamentary committee. Everyone realizes that amendments are a must.”
“THERE ARE PLANS TO PASS THE LABOR CODE IN A MONTH”
When will there be bills proposed in the parliament concerning bringing salaries out of the shade? And when the changes proposed by you are going to become effective, in 2011 or 2012?
“The question of legalization of salaries and labor market requires that amendments be made to the Labor Code first. So in a month we are planning to consider and pass the Labor Code. Then the legalization of salaries and social funds reform will follow. These are my priorities by the end of 2011. Besides, an important mission is to prepare the implementation of the second tier of the pension system.”
What do you mean?
“Looking into the recent post-crisis experience to see how the second tier of pension system worked in various countries. Today we can see that 2012 may be the last year of deficit in the Pension Fund, and as early as in 2013, the system of accumulation deposits may start working. But first we have to check how efficient it is going to be, because the second tier has certain threats for the solidary system, and this should be taken into account.”
Speaking of the economic reform, Ukrainian officials often make references to the promising Georgian experience, which they have been busy studying on the site. But what prevents this experience from being implemented in Ukraine, once it is so advanced?
“Not everything fits in. For instance, Georgia has got a very severe experience of reforming their pension system. Thus, they have a different approach to pension payments. An individual may have 50 years’ time record, but if they are well off, they won’t be getting a pension. For Ukraine, this approach is totally unacceptable.
“In other spheres we use the Georgian expertise, say, in the regulation of construction. Thus, the parliament has already passed a number of legislative acts concerning this. The draft law on enterprise bankruptcy is also on approval, which was also developed on the basis of Georgia’s experience. But in the examination of their practices, we only borrow those which are suitable for Ukraine.”
What do you think of the court sentence handed to the former prime minister Yulia Tymoshenko?
“I’m not going to give any opinion since the decision is not yet final. Obviously, the process will be continued and the ruling will be appealed. I can only state one thing: everything hangs on the stalling reforms. In this case, the Criminal Code of Ukraine was not harmonized with European legislation in its due time. Everything that is going on now suggests only one desire: to reform all spheres of life as soon as possible. First of all this goes for the judicial system, since it is its faults that cause most complaints.”
Do you expect the adaptation of our legislation to the European standards to be completed before the end of 2011 or not?
“I would very much like it was. This will take a lot of hard decisions, but they must be taken. Why? Because for 20 years, the politicians have been engaged in talk shops, while economy and the social sphere are still waiting to be reformed. If they are not reformed, we are in for big trouble.”
Does this mean that you don’t think that the ruling in Tymoshenko’s case is going to become a real hurdle on Ukraine’s path to the Association Agreement and Free Trade Area Agreement with the EU?
“I don’t know, the further negotiations will show. So far, we’re talking about non-extant prospects.”
With sharp statements made by the Europeans, what are the chances of Ukraine swapping its European priorities for membership in the Customs Union? How high is the risk?
“If the European Union says an absolutely clear ‘no,’ the probability of reorientation towards the Customs Union will be fairly high. The people who want to see Ukraine in the Customs Union today can get a very weighty argument in favor of pro-Union policies.”
The Cabinet of Ministers has got a part of the customs’ powers. Does it mean that the creation of a new government structure (a conglomeration of the State Tax Administration and State Customs Service of Ukraine) under the auspices of the Ministry of Finance is under way?
“So far it doesn’t mean anything, because there has been no ultimate political decision concerning the reform strategy for these two agencies. In all probability, it is just a haphazard decision. In my opinion, there will be no unification of the customs and tax administration in 2011. However, I support the idea of unification of all military and policing ministries, which comprise economic departments.”
Today a new draft Customs Code is being developed. How is it different from the effective document?
“The new code substantially simplifies the customs clearance of commodities across Ukraine’s border, establishes a transparent mechanism of determining the customs value and of the whole procedure of clearance in general, eliminating the human factor and following a clear-cut and exhaustive list of documents. There is also a series of innovations, which conform to the European and international standards. At the same time, customs authorities are vested with effective mechanisms for control, including risk management and post audit.”
“I DO NOT RULE OUT THE POSSIBILITY OF LEADING THE PARTY OF REGIONS”
When taking the decision about the amalgamation with the Party of Regions, how did you see your political future after that step?
“As an option, as one of the deputies of the leader of the Party of Regions, who would actively carry out reforms. These reforms would boost the Party’s reformative spirit. However, a party means competition. And if I generate and implement my efficient ideas, I do not rule out the possibility of leading the Party of Regions later at some point in time.”
You champion rather tough methods of economic management, and you are known for your opinions about the urge to cut down on the list of social benefits. On the contrary, the Party of Region supports the expansion of benefits. Won’t this difference in, let’s say, social standards lead to future conflicts after the amalgamation?
“One should not fear sound conflicts. Sound conflicts are those when all pros and cons are discussed openly and honestly. In my view, benefits should be reformed by the industry. If the practice of spreading benefits to all categories continues, it will be a wrong approach. When granting a benefit, the claimant’s material status should be considered – otherwise, millionaires will be getting Chornobyl benefits. Chornobyl benefits should be granted to all who are entitled to them, but they must depend on the income per member of household. Then government will really help the poor. Sadly, today only 23 percent of social benefits reach the poor. The rest end up in the pockets of the middle class and the rich.”
Should we expect the social reform by the end of 2011 then?
“The Ministry is going to prepare proposals on the revision of the approaches to granting professional benefits and hold negotiations with organizations in the industries. The list of benefits for prosecutors, legislators, and the Cabinet members will be revised and reduced.”
